Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[X
] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the
fiscal year ended July 31, 2009
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission
File Number: 333-148155
Solar
Energy Initiatives, Inc.
(Exact
Name of Registrant as Specified in its Charter)
Delaware
|
20-5241121
|
|
(State
or other jurisdiction of Incorporation)
|
(I.R.S.
Employer Identification No.)
|
|
|
818
A1A North
Suite
201
Ponte
Vedra Beach, Florida 32082
(Address
of principal executive offices including zip code)
(904)
644-6090
Registrant’s telephone number,
including area code:
Copies
to:
Stephen
M. Fleming, Esq.
Law
Offices of Stephen M. Fleming PLLC
110 Wall
Street, 11 th
Floor
New York,
New York 10005
516-833-5034
516-977-1209
(fax)
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act: None
1
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act [ ] Yes [X] No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
[ ]
Yes [ X ] No
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes { X } No
{}
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate
by a check mark whether the Registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ( ) No
( )
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes { } No
{X }
Large
accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller Reporting Company
[x]
State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: As of October 22, 2009, the Company had
outstanding 26,198,289 shares of its common stock, par value
$0.001.
2
Form 10-K
for the Fiscal Year Ended July 31, 2009
Index
|
|
PAGE NO.
|
||||
|
PART I
|
|
||||
Item
1.
|
|
Business.
|
|
5
|
||
Item
1A.
|
Risk
Factors.
|
16
|
||||
Item
1B.
|
Unresolved
Staff Issues
|
32
|
||||
Item
2.
|
|
Properties.
|
|
32
|
||
Item
3.
|
|
Legal
Proceedings.
|
|
33
|
||
Item
4.
|
|
Submission
of Matters to a Vote of Security Holders.
|
|
33
|
||
|
PART II
|
|
||||
Item
5.
|
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and issuer
purchase of Equity securities.
|
|
33
|
||
Item
6.
|
|
Selected
Financial Data.
|
|
34
|
||
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results
of Operation.
|
34
|
||||
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
43
|
||||
Item
8.
|
|
Financial
Statements and Supplementary Data.
|
43
|
|||
Item
9.
|
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
|
|
43
|
||
Item 9A(T).
|
Controls
and Procedures.
|
43
|
||||
Item
9B.
|
|
Other
Information.
|
|
44
|
||
|
PART
III
|
|
||||
Item
10.
|
|
Directors,
Executive Officers, and Corporate Governance.
|
|
44
|
||
Item
11.
|
|
Executive
Compensation.
|
|
47
|
||
Item
12.
|
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
|
54
|
||
Item
13.
|
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
|
57
|
||
Item 14.
|
|
Principal
Accountant Fees and Services.
|
|
60
|
||
PART
IV
|
||||||
Item
15. Exhibits and Financial Statement
Schedules
|
62
|
|||||
Signatures
|
64
|
|||||
3
Cautionary
Statement Regarding Forward-Looking Statements
This
Annual Report on Form 10-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements are statements that
do not represent historical facts. We use words such as “may,” “will,” “should,”
“could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”
“project,” “predict,” “potential,” “continue” and similar expressions to
identify forward-looking statements. Forward-looking statements in this Annual
Report on Form 10-K include, but are not limited to, those discussed in the
section entitled "Management's Discussion and Analysis or Plan of Operation”,
our plans and expectations regarding future financial results, operating
results, business strategies, projected costs, products, competitive positions,
management’s plans and objectives for future operations, and industry trends.
These forward-looking statements are based on information available to us as of
the date of this Annual Report on Form 10-K and current expectations, forecasts
and assumptions and involve a number of risks and uncertainties that could cause
actual results to differ materially from those anticipated by these
forward-looking statements. Such risks and uncertainties include a variety of
factors, some of which are beyond our control. Please see “Item 1A: Risk
Factors” and our other filings with the Securities and Exchange Commission for
additional information on risks and uncertainties that could cause actual
results to differ. These forward-looking statements should not be relied upon as
representing our views as of any subsequent date, and we are under no obligation
to, and expressly disclaim any responsibility to, update or alter our
forward-looking statements, whether as a result of new information, future
events or otherwise.
The
following information should be read in conjunction with the Consolidated
Financial Statements and the accompanying Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K. Our fiscal year ends on
July 31 of the applicable calendar year. All references to fiscal periods apply
to our fiscal quarters or year which ends on the last day of the calendar month
end.
Estimates
of future financial results are inherently unreliable.
From time
to time, representatives of Solar Energy Initiatives, Inc. (f/k/a NP Capital
Corp.) ("NP Capital,” "Solar Energy,” the ”Company," “we,” “our,” or “us”) may
make public predictions or forecasts regarding the Company's future results,
including estimates regarding future revenues, expense levels, earnings or
earnings from operations. Any forecast regarding the Company's future
performance reflects various assumptions. These assumptions are subject to
significant uncertainties, and, as a matter of course, many of them will prove
to be incorrect. Further, the achievement of any forecast depends on numerous
factors (including those described in this discussion), many of which are beyond
the Company's control. As a result, there can be no assurance that the Company's
performance will be consistent with any management forecasts or that the
variation from such forecasts will not be material and adverse. Investors are
cautioned not to base their entire analysis of the Company's business and
prospects upon isolated predictions, but instead are encouraged to utilize the
entire available mix of historical and forward-looking information made
available by the Company, and other information affecting the Company and its
products, when evaluating the Company's prospective results of
operations. In addition, representatives of the Company may
occasionally comment publicly on the perceived reasonableness of published
reports by independent analysts regarding the Company's projected future
performance. Such comments should not be interpreted as an endorsement or
adoption of any given estimate or range of estimates or the assumptions and
methodologies upon which such estimates are based. Undue reliance should not be
placed on any comments regarding the conformity, or lack thereof, of any
independent estimates with the Company's own present expectations regarding its
future results of operations. The methodologies employed by the Company in
arriving at its own internal projections and the approaches taken by independent
analysts in making their estimates are likely different in many significant
respects. Although the Company may presently perceive a given estimate to be
reasonable, changes in the Company's business, market conditions or the general
economic climate may have varying effects on the results obtained through the
use of differing analyses and assumptions. The Company expressly disclaims any
continuing responsibility to advise analysts or the public markets of its view
regarding the current accuracy of the published estimates of outside analysts.
Persons relying on such estimates should pursue their own independent
investigation and analysis of their accuracy and the reasonableness of the
assumptions on which they are based.
4
PART
I
Recent
Developments
On August 21, 2008, the
Company entered into and closed a Website Purchase Agreement (the
“WPA”) with Solar Energy, Inc. (“SEI”) and the shareholders of SEI pursuant to
which the Company acquired the domain name, www.solarenergy.com, the
web site that uses the domain name, the name Solar Energy, Inc. and all trade
rights associated with these assets (collectively, the “SEI
Assets”).
In
consideration for the purchase and sale of the SEI Assets, the Company assumed
various liabilities, made a cash payment of $160,000 at closing, issued the
seller a secured
note, collateralized by a lien on the assets referenced in the Website Purchase
Agreement, in the principal amount of $840,000, with 7.5%
interest, that is payable over a period of 21 months with principal payments of
$40,000 per month and issued the seller 1,000,000 shares of common stock of the
Company.
On August 25, 2008 SEI Acquisition,
Inc., the entity established to acquire the assets of Solar Energy, Inc.,
changed its name to Solar Energy, Inc. Solar Energy, Inc. is a wholly
subsidiary of the Company and a Florida corporation
On September 8, 2008 the Company hired
Gregory N. Bakeman as its Chief Financial Officer. On September 29,
2008, Mr. Bakeman was also appointed as the Chief Operating
Officer.
On September 18, 2008, the Company
filed a Certificate of Amendment to the Certificate of Incorporation (the
“Certificate”) with the Secretary of State of the State of Delaware to
effectuate the amendment of the Certificate of Incorporation to change the
Company’s name to Solar Energy
Initiatives, Inc. As a result of the name change, on September
24, 2008 the Company’s stock quotation symbol changed from “NPCX” to “SNRY”.
5
In
December 2008, Bradley C. Holt resigned as Chief Executive Officer (“CEO”) of
the Company. Michael J. Dodak temporarily accepted the CEO
position.
In
February 2009, the Board of Directors appointed David W. Fann as the new Chief
Executive Officer and promoted Gregory N. Bakeman to the position of
President. Mr. Bakeman also continued to serve as the Company’s Chief
Financial Officer. Michael J. Dodak resigned from the day-to-day
activities of the Company but remained on the Board of Directors and will focus
on securing large solar development projects via his proven background within
the renewable energy industry.
In May
2009, the Company finalized a contract with a school district in the western
United States to install and operate a photovoltaic solar system, on school
facilities. Solar Energy Initiatives entered into the Power Purchase Agreement
(“PPA”) with the school district and supplied the solar equipment for the
installation on the locations within the school district. Solar
Energy Initiatives identified and contracted with a construction management
company and funding source to buy and install the solar system at no “out of
pocket” cost to the school district. A separate company (“LLC”) was
formed by the funding source to own and operate the solar system and sell the
generated solar energy to the school district at a discounted rate compared to
the current electricity provider. Solar Energy Initiatives has
assigned the PPA and construction contracts to the LLC and is to receive an
economic interest in the LLC which would provide a portion of the net income
derived from the revenue of the energy sold to the school district to the
Company. As of
October 23, 2009 we are still negotiating a final LLC ownership percentage for
the Company.
In July
2009 the Company signed a Solar Project Lease and Agreement (“Project Lease”) to
lease approximately 3,300 acres of land, including all air space thereof and all
areas necessary or appropriate for the construction of Solar Power Facilities
(“the Premises”), located in the state of Texas for the development of a 300
megawatt solar park.
The
Company shall have a period not to exceed 90 days following the effective date
of the agreement, unless extended by mutual consent, whereby either the Company
or the lessor may elect, by written notice to terminate the Project Lease. As
consideration for the lessor’s agreement to enter into the Project Lease subject
to the Title Evaluation Period, the Company paid a nonrefundable $10,000 fee.
However, the Company shall be entitled to a full credit equivalent to the
Evaluation Fee against the rent amount payable by the Company on the rent
commencement date.
The
Project Lease shall initially be for the term commencing in July 2009 and ending
on the sooner to occur of 5 years or the date on which the first extended term
commences (the “Development Term”). The Company shall have the right and option
to extend the term of the Project Lease for two successive 25 year periods
(“Extended Terms”).
Rent
during the Development Term shall be equal to the product of (a) $7.00 and (b)
the number of acres of the Premises commencing on the rent commencement date and
each successive twelve month period.
6
During
the Extended Terms, the Company shall pay to the lessor as a minimum rent
(“Minimum Rent”) the greater of (i) a per acre amount multiplied by the number
of acres of the Premises or (ii) a per megawatt amount multiplied by the
Megawatts of generating units on the premises as below:
Extended Term Year
|
Per Acre
|
Per Megawatt
|
1 –
20
|
$17.50
|
$3,000
|
21-30
|
$27.50
|
$4,500
|
31-40
|
$30.00
|
$5,000
|
41-50
|
$35.00
|
$6,000
|
For each
Extended Term year, the Company shall also pay to the lessor, as addition rent
(“Additional Rent”), the amount, if any, by which gross revenues, multiplied by
a percentage commencing at 4.0% for extended term years 1-10 and increasing 0.5%
in year 11 and every 5 years through the end of the lease, exceeds the Minimum
Rent.
On
September 22, 2009 the Company announced an offer to all holders of its holders
of common stock purchase warrants (the “Warrants”) that it would reduce the
exercise price on the Warrants to $0.30 per share for a temporary
period. During the temporary Warrant exercise price reduction period,
which ended October 15, 2009, 2,038,500 Warrants were exercised at $0.30 into a
corresponding number of shares of common stock for a total of $611,549. The
shares were issued on October 15, 2009.
Company
Description and Overview
Our business plan focuses on the
purchase and sale of solar technologies used for heating water and generating
electricity. We are a component integrator creating solar systems for
particular applications and not affiliated with any manufacturing or technology
companies. This independence enables us to identify and purchase
“best of class” solar components from sources around the world, offering the
best pricing, quality and warranties available.
7
We
have established four interrelated business activities that we are pursuing to
achieve our plan. These include:
·
|
training
and expanding a dealer network with the goal of increasing the selling
potential for solar electric (“PV”) and solar hot water, (“Thermal”)
system solutions to homeowners and commercial
customers;
|
·
|
training
a work force to install solar
systems;
|
·
|
selling
and placing solar systems on or adjacent to municipal and commercial
locations and, in some cases, owning the system and selling the energy
output to the owner/occupant(s);
and
|
·
|
be
a developer of solar parks bringing together landowners, utilities and our
corporate resources to build large photovoltaic
installations.
|
We are
executing our “RENEW THE NATION” campaign, intended to promote job growth
nationwide and help reduce the dependency on foreign oil via an aggressive grass
roots effort. The main focus of RENEW THE NATION is working with companies in
the construction industry and related trades adversely affected by the economic
downturn to re-train and re-deploy their workforce, allowing this important
national asset to meet the needs of the Solar Energy industry, the fastest
growing industry in the world.
We have
entered into supply agreements with manufacturers of solar products to establish
pricing and delivery parameters. We have identified and will continue
to seek solar technologies that have industry leading performance, are of high
quality, offer competitive pricing and have strong warranties. We are
selling solar power products including; solar panels and inverters which convert
sun energy into electricity compatible with the utility network and solar
thermal technologies that use the sun’s radiation for hot water applications.
Our solar sales efforts are primarily focused on residential and commercial
applications, primarily through our dealer network, where our selected solar
energy products and systems offer customers economic benefits utilizing federal,
state and local incentives and compared with the locally supplied
electricity.
We are
primarily focusing our sales efforts in regions where electricity prices and
government incentives are attractive and have accelerated solar power
adoption. The business segments we have identified to pursue can
require a significant level of expertise and capital. We have
obtained the expertise, and are accessing the necessary capital to roll out our
plan. If we are unable to continue to acquire or develop such
expertise or capital, we may not be able to fully develop our planned business
and ultimately may be required to cease operations. We anticipate
that the end customers of our sales processes will be homeowners, owners of
large commercial and industrial buildings and facilities, municipalities and
owners of large tracts of undeveloped land.
We have
nineteen (19) employees in sales, assembly and administrative
positions. We have trained more than ninety (90) dealers for an
independent network and continue to aggressively identify new dealer
candidates. Part of the benefit of new dealers joining the Solar
Energy, Inc. network is a training class we provide which covers technical,
functional and business aspects of participating in the sale and installation of
solar components and systems. We also provide on-going technical and
sales support for dealers after training. Accordingly, we have
generated revenues from the addition and training of the new
dealers. Our domain name, solarenergy.com and corresponding website
is the most actively accessed solar website in the world. Sale leads
for our dealer network are received via the website and we pass these leads to
our dealers within the Solar Energy, Inc. network. We sell solar
components and systems to our dealers at prices we believe they cannot access
independently. They in turn sell and install these components and
systems to their customers.
8
We
utilize consultants to provide specialized services and independent sales
representatives for certain sales activities.
We are
buying products for our solar sales activities from manufacturers and vendors
around the world. Our distribution and supply agreements provide us
with strategic and competitive advantages, including, volume purchase discounts
and other arrangements.
Business
Focus
Our
business is to market and sell solar power products, systems and services.
Specifically, we are engaged in the following:
1)
|
Train
dealers and technicians for the solar industry,
|
2)
|
support
and continue to expand a dealer network that sells solar components and
systems to residential and commercial customers,
|
3)
|
develop
commercial projects, as the owner and operator, and sell power to the
municipality, building owner or tenant, and
|
4)
|
develop
solar parks.
|
We offer
solar power products including solar panels, inverters and balance of system
which convert sunlight into utility quality electricity, and solar thermal
systems which utilizes the sun’s radiation to heat water for homes and
commercial applications. Installation and maintenance of these solar
power products is performed by either the dealer network or 3rd
party vendors identified by us. Our initial solar installation sales efforts are
focused on supporting our dealer network’s sales to residential, commercial
customers and the sale of solar systems to owner/operators where the energy
generated will be sold to municipal customers.
We have
entered into a contract with a Western United States municipality where we
agreed to build, own and operate a solar electric system we contracted for
installation on buildings identified by the municipality. The
successful funding, construction and commissioning of the 800 kilowatt solar
electric system has verified this vertical of our business plan.
In
connection with our solar park development business, we intend to provide solar
power systems to end customers on a turn-key, whole-solution basis by
identifying and developing the project, and procuring financing, permits,
equipment, construction and operational resources. As our business
matures we may also provide engineering, manage construction, and provide
monitoring, operations and maintenance services to the projects.
9
We buy
products for our solar sales activities from manufacturers and vendors around
the world. We have entered into distribution and supply agreements
that provide us with strategic and competitive advantages, including certain
rights, volume purchase discounts, and other arrangements.
The
Energy Industry
The
production of electrical power is one of the world's largest
industries. The demand and cost for electricity is expected to
increase in the coming years.
Fossil
fuels are non-renewable resources, meaning that at some point the world will
exhaust all known oil and natural gas reserves. We believe the
electrical utility industry and traditional oil and gas companies face many
challenges in meeting the growing worldwide demand for energy, including the
following:
|
Fossil Fuel Supply
Constraints: A large portion of the world's electricity
is generated from fossil fuels such as coal, oil and natural gas. Limited
fossil fuel supply and escalating demand for electricity should continue
to drive up wholesale electricity prices, creating a need to develop new
technologies for power generation.
|
|
Infrastructure
Constraints: In many parts of the world, the existing
electricity generation and transmission infrastructure is insufficient to
meet projected demand. Developing and building a centralized power supply
and delivery infrastructure is capital intensive. This has left the
electricity supply insufficient to meet demand in some areas, resulting in
both scheduled and unscheduled
blackouts.
|
|
Desire for Energy
Security: Given the political and economic instability
in the major oil and gas producing regions of the world, governments are
trying to reduce their dependence on foreign sources of fossil
fuels.
|
An
underlying consideration concerning the delivery of electricity is the location
of the generation source relative to the location of the end-use consumption.
Over the past century, the economics of power plant construction supported
larger and larger central station sites linked to transmission lines spanning
great distances to reach the ultimate consumer. These economic considerations
have been altered by the advent of smaller scale technologies that can provide
electricity at competitive prices near the place of consumption. The combination
of economic factors and of advances in generation technologies opens the market
to an opportunity for "distributed generation" of electricity in combination
with traditional grid resources. Distributed generation in its simplest
configuration is energy generation at the source of consumption (solar and
thermal panels on the roof or contiguous to the user’s location). Our
products and services, including solar parks, are directed at this
renewable distributed generation environment as well as specific application
power solutions.
10
Environmental
Issues and Regulations
We are
subject to a variety of foreign, federal, state and local governmental laws and
regulations related to generation and delivery of electricity and the purchase,
storage, use and disposal of hazardous materials. In some cases, these laws
provide local utilities with “monopoly” rights, adversely constraining our
ability to easily penetrate economically attractive markets. In other
cases, if we fail to comply with present or future environmental laws and
regulations, we could be subject to fines, suspension of production or a
cessation of operations. In addition, under some foreign, federal,
state and local statutes and regulations, a governmental agency may seek
recovery and response costs from operators of property where releases of
hazardous substances have occurred or are ongoing, even if the operator was not
responsible for the release or otherwise was not at fault.
In
addition to those we have identified, we continue to seek markets that allow for
the generation and sale of electricity by “third party
developers”. We also believe that we will apply for and receive all
environmental permits necessary to conduct our business. We are not
aware of any pending or threatened environmental investigation, proceeding or
action by foreign, federal, state or local agencies, or third parties involving
our current facilities. Any failure by us to control the use of or to restrict
adequately the discharge of, hazardous substances could subject us to
substantial financial liabilities, operational interruptions and adverse
publicity, any of which could materially and adversely affect our business,
results of operations and financial condition.
Dependence on Government
Subsidies and Incentives
Various
subsidies and tax incentive programs exist at the federal, state and local level
to encourage the adoption of solar power including capital cost rebates,
performance-based incentives, feed-in tariffs, tax credits and net metering.
Capital cost rebates provide funds to customers based on the cost or size of a
customer’s solar power system. Government policies, in the form of regulation
and incentives, have accelerated the adoption of solar technologies by
businesses and consumers.
Performance-based
incentives provide funding to a customer based on the energy produced by their
solar system. Under a feed-in tariff subsidy, the government sets prices that
regulated utilities are required to pay for renewable electricity generated by
end-users. The prices are set above market rates and may be differentiated based
on system size or application. Feed-in tariffs pay customers for solar power
system generation based on kilowatt-hours produced, at a rate generally
guaranteed for a period of time. Tax credits reduce a customer’s taxes at the
time the taxes are due. Net metering programs allow a customer, who generates
more energy than used, to “sell” electricity back to the utility which will spin
the meter backwards. During these periods, the customer “lends” electricity to
the grid, retrieving an equal amount of power at a later time. Net metering
programs enable end-users to sell excess solar electricity to their local
utility in exchange for a credit against their utility bills. Net metering
programs are usually combined with rebates, and do not provide cash payments if
delivered solar electricity exceeds their utility bills.
11
Renewable Energy
Certificates
In addition, several states have
adopted renewable portfolio standards (“RPS”), which mandate that a certain
portion of electricity delivered to customers come from a set of eligible
renewable energy resources. Under a renewable portfolio standard, the government
requires regulated utilities to supply a portion of their total electricity in
the form of renewable electricity. Some programs further specify that a portion
of the renewable energy quota must be from solar electricity. A
utility can receive “credit” for renewable energy produced by a 3rd
party by either purchasing the electricity directly from the producer or paying
a fee to obtain the right to renewable energy generated but used by the
generator or sold to another party. This Renewable Energy Credit
allows the utility to add this electricity to its RPS requirement total without
actually expending the capital for generating facilities.
Despite
the benefits of solar power, there are also certain risks and challenges faced
by solar power. Solar power is currently dependent on government subsidies to
promote acceptance by mass markets. We believe that the near-term growth in the
solar energy industry depends significantly on the continued availability and
size of these government subsidies and on the ability of the industry to reduce
the cost of generating solar electricity. The market for solar energy products
is, and will continue to be, heavily dependent on public policies that support
growth of solar energy. There can be no assurances that such policies will
continue. Decrease in the level of rebates, incentives or other governmental
support for solar energy would have an adverse affect on our ability to sell our
products.
Challenges Facing Solar
Power
The
solar power industry must overcome the following challenges to achieve
widespread commercialization of its products:
|
Decrease
Per Kilowatt-hour Cost to Customer. In most
cases, the current cost of solar electricity is greater than the cost of
retail electricity from the utility network. While government programs and
consumer preference have accelerated the use of solar power for on-grid
applications, product cost remains one of the largest impediments to
growth. To provide an economically attractive alternative to conventional
electricity network power, the solar power industry must continually
reduce manufacturing and installation
costs.
|
|
Achieve
Higher Conversion Efficiencies. Increasing
the conversion efficiency of solar cells reduces the material and assembly
costs required to build a solar panel with a given generation capacity.
Increased conversion efficiency also reduces the amount of rooftop space
required for a solar power system, thus lowering the cost of installation
per consumer.
|
12
|
Improve
Product Appearance. We believe that
aesthetics are a barrier to wider adoption of solar power products
particularly among residential consumers. Historically, residential and
commercial customers have resisted solar power products, in part, because
most solar panels are perceived as
unattractive.
|
Ultimately,
federal and state government, and locally sponsored, support for the solar
industry is expected to reduce or stop. At or before that time, solar
technologies must be priced, as a function of purchase price and performance, to
compete cost effectively with traditional electricity generating
technologies.
The
market for solar power products is competitive and continually evolving. We
expect to face increased competition, which may result in our inability to
develop sustaining revenue. We will compete with companies large and small,
public and private, and some will be suppliers as well as competitors and well
known such as; groSolar, Sunpower, Sunwize, BP Solar, Evergreen Solar and GE
Solar. Chinese companies have made significant inroads in manufacturing and are
the leaders in the production of solar panels or modules. Many of our
competitors have established a stronger market position than ours and have
larger resources and recognition than we have. In addition, the solar power
market in general competes with other sources of renewable energy and
conventional power generation.
We
believe that the key competitive factors in the market for solar products
include:
•
|
power
efficiency and performance;
|
||
•
|
price;
|
||
•
|
quality,
and warranty coverage and length;
|
||
•
|
aesthetic
appearance of solar installations;
|
||
•
|
strength
of distribution relationships; and
|
||
•
|
Knowledgeable
sales and installation personnel.
|
Our
Products
Solar
Panels
Solar
panels are solar cells electrically connected together and encapsulated in a
weatherproof package. We purchase solar panels from manufacturers that provide
excellent component quality, aggressive pricing per watt of output and strong
warranties. We purchase panels from Suntech, GE Solar, BP Solar and
other vendors in the U.S. and off-shore.
One of
the important considerations, in addition to price, is the length and terms of
the product warranty. Today, typical warranties call for 25-years of
performance at a minimum of 80% of the rated, maximum output of the
panel. Other additional warranty coverage is also provided by
manufacturers including; minimum warranted power, per watt PVUsa Test Conditions
rating (“PTC”), efficiency rating of the solar panels, etc.
13
Inverters
Inverters
transform direct current (“DC”), electricity produced by solar panels into the
more common form of alternating current (“AC”), electricity used in homes and
businesses. Inverters are used in virtually every on-grid solar power
system and typically feed power either directly into the structure’s electrical
circuit or into the utility grid. In North America, we will sell
branded inverters specifically designed for use in residential and commercial
systems. Inverters we will source include models spanning a power range of 2.5
to 500 kilowatts. Our packaged system designs optimize performance through the
appropriate combination of these inverters with our solar panels. The units are
highly efficient, possessing above-average DC to AC conversion efficiency
compared to other commercially available units in their class, according to
comparisons of information on other systems provided by the California Energy
Commission. Our inverters are manufactured for us by Solectria, Xantrex, SMA
Technologie, AG and PV Powered.
Solar
Thermal Systems
Solar
thermal systems typically include a solar collector, which gathers solar
radiation to heat air or water for domestic, commercial or industrial use,
piping and/or pump(s) to move heated water and a tank for storage. The solar
panel is usually a flat plate collector that consists of a metal box with a
glass or plastic cover and a black absorber plate at the
bottom. Absorber plates are usually painted with selective coatings
that absorb and retain heat better than ordinary black paint. They are normally
made of metal, typically copper or aluminum, because they are good conductors of
heat. Copper is more expensive, but it is a better conductor and is less prone
to corrosion than aluminum. The sides and bottom of the collector are usually
insulated to minimize heat loss. The solar collector is usually mounted on the
roof and is usually connected to a circuit that flows heated water by a pump to
the main hot water tank. Components for solar thermal systems are
typically manufactured, domestically and abroad, by smaller, private companies
unlike the large public and recognizable names often associated with solar
PV.
We
provide our dealers and customers with a variety of services, including system
design, energy efficiency, financial consulting and analysis, construction
management and maintenance and monitoring.
System
Design
Solar
electric and solar thermal systems are designed to take into account the
customer’s location, site conditions and energy needs. During the
preliminary design phase, a site audit and building assessment are conducted for
onsite generation feasibility and to identify energy efficiency savings
opportunities. Performance of a proposed system design is “modeled” taking into
account variables such as local weather patterns, utility rates and other
relevant factors at the customer’s location. The necessary permits are
identified systems designed to comply with applicable building codes and other
regulations.
14
Financial
Consulting and Analysis
The
financial attributes of solar systems are calculated using the applicable
federal, state and local incentives and the cost of energy currently and
expected to be paid by the customer. The anticipated economic
benefits of including solar system(s) to a customer’s home or facility are
calculated. We are planning to pursue partnerships with one or more
financial companies and organizations to provide project development financing,
bonding and end financing for residential and commercial customers.
Construction
Management
We intend
to offer general contracting services and project management to oversee all
aspects of system installation, including securing necessary permits and
approvals. Subcontractors, typically electricians, plumbers and
roofers, usually provide the construction labor, tools and heavy equipment for
solar system installation. We plan to develop relationships with general and
subcontractors in many target markets, and will require these contractors to be
licensed, carry appropriate insurance and adhere to the local labor and payroll
requirements. Our construction management services would include system testing,
commissioning and management of utility network interconnection.
Maintenance
and Monitoring
Typically,
our dealers will provide post-installation services in support of solar power
systems they install to their residential and small commercial
customers. As we pursue 3rd
party owned and operated solar systems and solar park projects, we intend to
provide the on-going system repair, maintenance and monitoring,
including:
·
|
Operations
and Maintenance: Solar systems have a design life in excess of 25 years.
We anticipate offering to our customers a series of maintenance services
that can include; continuous remote monitoring of system performance,
quick turnaround on-site response to any system problem through a
qualified local service technician and periodic preventive maintenance as
well as certain forms of system
testing.
|
·
|
Monitoring:
We will acquire monitor system performance technology used in most of the
commercial systems installed. The monitoring technology continuously scans
system performance.
|
Sales
and Marketing
Our sales
and marketing program incorporates a mix of print and web as well as
participation in industry trade shows and individual consultations with
prospective customers. In addition, we rely heavily on the independent dealer
network and we intend to work with and grow this network. We train the dealer
network to design a system that best meets a customer’s needs, taking into
account the unique installation and economic requirements for each location, and
provide technical support to the dealers as necessary and needed. Commercial
sales take a more consultative, long-term selling approach to meet the varying
needs of larger customers. The sales process typically includes, a determination
that a potential customer’s site has the required exposure for solar power, a
site visit and a survey with our proprietary software that analyzes current
utility rate options, current electric rates, system performance, tax rate
scenarios, equipment costs, installation costs, incentives and other factors
applicable to a specific customer’s circumstances.
15
We own
the most accessed solar web site in the world, solarenergy.com. We
intend to aggressively pursue the “monetization” of this asset, continually
updating its content, expanding its reach as a solar resource and ultimately
developing solarenergy.com into the valuable asset it has the potential to
be.
Employees
At the
end of our fiscal year, we have fourteen (14) employees in sales, assembly and
administrative positions
Item
1A. RISK FACTORS
Although
not required to include risk factors as the Company is a Smaller Reporting
Company, the Company is voluntarily providing risk
factors. This investment has a high degree of risk. Before you
invest you should carefully consider the risks and uncertainties described below
and the other information in this prospectus. If any of the following risks
actually occur, our business, operating results and financial condition could be
harmed and the value of our stock could decrease. This means you could lose all
or a part of your investment.
We
have a limited operating history, there is no certainty that we will ever
generate revenue and achieve profitability.
We
generated revenue of $3,821,610 for our fiscal year ended July 31,
2009. We have incurred significant losses from
development and operations. As shown in our financial statements, as of the
periods ended July 31, 2009 and July 31, 2008, we have incurred a cumulative net
loss of $5,111,011 and $1,955,742, respectively, from operations. We
will continue to incur operating losses in the future, primarily due to the
initiation and expansion of our operations. Negative cash flow from operations
may also continue into future. Our ability to achieve profitability depends upon
our ability to; continue to sell dealerships and technical training classes,
significantly expand the solar component and system sell-through to our dealer
network, convert opportunities to sell large municipal and commercial projects,
and successfully begin development of one or more solar park(s).
We
may be unable to manage our growth or implement our expansion
strategy.
We may
not be able to implement our proposed product and service offerings, develop an
active dealer network base and markets, or implement the other features of our
business strategy at the rate or to the extent presently planned. Our
projected growth will place a significant strain on our administrative,
operational and financial resources. If we are unable to successfully manage our
future growth, establish and continue to upgrade our operating and financial
control systems, recruit and hire necessary personnel or effectively manage
unexpected expansion difficulties, our financial condition and results of
operations could be materially and adversely affected.
16
Additional
financing will be necessary for the implementation of out growth
strategy.
We will
require additional equity and/or debt financing to pursue our growth strategy.
Given our limited operating history and existing losses, there can be no
assurance that we will be successful in obtaining additional financing. Lack of
additional funding could force us to curtail substantially our growth plans.
Furthermore, the issuance by us of any additional securities pursuant to any
future fundraising activities undertaken by us would dilute the ownership of
existing shareholders and may reduce the price of our common stock.
Debt
financing, if available, will require payment of interest and may involve
restrictive covenants that could impose limitations on our operating
flexibility. Our failure to successfully obtain additional future funding may
jeopardize our ability to continue our business and operations.
The
loss of our current directors and executive officers or our inability to attract
and retain the necessary personnel could have a material adverse effect upon our
business, financial condition or results of operations
Our
success is heavily dependent on the continued active participation of our
current directors and officers listed under “Directors and Management.” Loss of
the services of our directors and officers could have a material adverse effect
upon our business, financial condition or results of operations. Further, our
success and achievement of our growth plans depend on our ability to recruit,
hire, train and retain other highly qualified technical and managerial
personnel. Competition for qualified employees among companies in the technology
industry is intense, and the loss of any of such persons, or an inability to
attract, retain and motivate any additional highly skilled employees required
for the expansion of our activities, could have a materially adverse effect on
us. The inability on our part to attract and retain the necessary personnel and
consultants and advisors could have a material adverse effect on our business,
financial condition or results of operations. Finally, we need to
identify and engage independent directors to join the board and serve on the
Audit Committee, including one that qualifies as an “accounting expert” to meet
the public company listing qualifications of Sarbanes-Oxley, section
301. Without the addition of directors and an accounting expert, we
will not be able to be listed on the National Association of Securities Dealers
Automated Quotations (NASDAQ) exchange or other primary stock
exchange.
We
are controlled by current officers, directors and principal
stockholders.
Our
directors, executive officers and principal five percent stockholders and their
affiliates beneficially own approximately 24.36% of the outstanding shares of
Common Stock. Accordingly, our executive officers, directors, principal
stockholders and certain of their affiliates will have the ability to control
the election of our Board of Directors of the Company and the outcome of issues
submitted to our stockholders.
17
If
there is a shortage of components and/or key components rise significantly in
price, that may constrain our revenue growth. The market for
photovoltaic installations has slowed recently, the result of world-wide
financial and economic problems. The introduction of significant
production capacity, however, has continued increasing supply and reducing the
cost of solar panels. If demand increases and supply contracts, the
resulting likely price increase could adversely affect sales and
profitability. Additionally, we may not have sufficient financial
resources to take advantage of supply opportunities as they may
arise.
During
2008 and into 2009, there was a tremendous increase in the capacity to produce
solar modules, primarily from China, which in the face of the most severe,
world-wide, economic downturn in nearly a century, significantly reduced the
price of solar panels. As demand for solar panels will likely
increase with an economic recovery, demand and pricing for solar modules on a
per watt basis could increase, potentially limiting access to solar modules and
reducing our selling margins for panels.
Our
dependence on a limited number of third party suppliers for components could
prevent us from delivering our proposed products to our customers within
required timeframes, which could result in order cancellations and substantial
harm to our business.
We
purchase our products using materials and components procured from a limited
number of third-party suppliers. If we fail to establish or maintain
our relationships with these suppliers, or to secure additional supply sources
from other suppliers, we may be unable to provide our products or our products
may be available only at a higher cost or after a long delay, which could
prevent us from delivering our products to our customers within required
timeframes, and we may experience order cancellations and our business may fail.
We currently have supply agreements with suppliers to allow us to buy products
at market rates and procure sufficient product quantities to assemble and sell
our products on acceptable commercial terms. The failure of a supplier to supply
materials and components in a timely manner, or to supply materials and
components that meet our quality, quantity and cost requirements could impair
our ability to purchase our products or increase their costs, particularly if we
are unable to obtain substitute sources of these materials and components on a
timely basis or on terms acceptable to us. In order to obtain
required supplies, we may need to make large inventory purchases on short
notice, and prior to having purchase orders or deposits from our customers for
product using the full amount of silicon required to be purchased. We may not
have sufficient financial resources to make these purchases, which may
exacerbate supply shortages.
Our
business depends on the implementation of our current and future agreements with
foreign and domestic manufacturers, securing contracts with other suppliers and
orders with customers and ensuring products to sell.
To date,
we have entered into two supply agreements with solar panel
suppliers. We intend to pursue other agreements with component and
balance of system suppliers to attempt to manage the cost of materials and
supply allocations. If we are unable to maintain our supply
agreements, establish competitive additional supply sources or we are unable to
develop adequate sales, we may be forced to cease operations.
18
Our
operating results will be subject to fluctuations and are inherently
unpredictable; if we fail to meet the expectations of securities analysts or
investors, our stock price may decline significantly.
Our
quarterly revenue and operating results will be difficult to predict from
quarter to quarter. It is possible that our operating results in some quarters
will be below market expectations. Our quarterly operating results will be
affected by a number of factors, including:
•
|
the
average selling price of the solar products that we purchase
including PV and Thermal systems;
|
||
•
|
the
availability, pricing and timeliness of delivery of third party sources
products, components and systems, particularly solar panels and
balance of systems components, including steel, necessary for solar power
products to function;
|
||
•
|
the
rate and cost at which we are able to expand to meet customer demand,
including costs and timing of adding personnel;
|
||
•
|
the
amount and timing of sales of our systems, especially medium
and large-scale projects, which may individually cause severe fluctuations
in our revenue;
|
||
•
|
our
ability to meet project completion schedules and the corresponding revenue
impact under such contractual devises as percentage-of-completion method
of recognizing revenue for projects which may apply;
|
||
•
|
construction
cost overruns, including those associated with the introduction of new
products;
|
||
•
|
incentives
play a major roll in the buying/decision making process for our potential
customers, significant changes in regulation or incentives may adversely
effect our business;
|
||
•
|
the
impact of seasonal variations in demand and/or revenue recognition linked
to construction cycles and weather conditions;
|
||
•
|
unplanned
additional expenses such as manufacturing failures, defects or
downtime;
|
||
•
|
acquisition
and investment related costs;
|
||
•
|
unpredictable
volume and timing of customer orders, some of which are not fixed by
contract but vary on a purchase order basis;
|
||
•
|
unpredictable
sales cycle time lines inherent with new solutions and
products;
|
||
•
|
geopolitical
turmoil within any of the countries in which we operate or sell
products;
|
||
|
•
|
foreign
currency fluctuations, particularly in the Euro or the Chinese
Yuan;
|
|
•
|
the
effect of currency hedging activities;
|
||
•
|
our
ability to establish and expand customer relationships;
|
||
•
|
changes
in our manufacturing costs;
|
||
•
|
changes
in the relative sales mix of our solar cells, solar panels and imaging
detectors;
|
||
•
|
the
availability, pricing and timeliness of delivery of other products, such
as inverters necessary for our solar power products to
function;
|
||
•
|
our
ability to successfully procure and sell new or enhanced solar power
products in a timely manner;
|
||
•
|
the
timing of new product or technology affiliations or agreements by our
competitors and other developments in the competitive
environment;
|
||
•
|
the
willingness of solar panel suppliers to continue product sales to
us;
|
||
•
|
increases
or decreases in electric rates due to changes in fossil fuel prices or
other factors; and
|
||
•
|
labor
shortages, expertise shortages, shipping and other factors causing
business delays.
|
19
We plan
to base our operating expenses in part on our expectations of future revenue,
and a significant portion of our expenses will be relatively fixed in the short
term. If revenue for a particular quarter is lower than we expect, we likely
will be unable to proportionately reduce our operating expenses for that
quarter, which would harm our operating results for that quarter. This may cause
us to miss discussed future expectations, current analysts’ guidance or any
future guidance announced by us. If we fail to meet or exceed analyst or
investor expectations or our own future guidance, even by a small amount, our
stock price could decline, perhaps substantially.
Existing
regulations and policies and changes to these regulations and policies may
present technical, regulatory and economic barriers to the purchase and use of
solar power products, which may significantly reduce demand for our
products.
The
market for electricity generation products is heavily influenced by foreign,
U.S. federal, state and local government regulations and policies concerning the
electric utility industry, as well as policies promulgated by electric
utilities. These regulations and policies often relate to electricity pricing
and technical interconnection of customer-owned electricity generation. In the
U.S. and in a number of other countries, these regulations and policies are
being modified and may continue to be modified. Customer purchases of, or
further investment in the research and development of, alternative energy
sources, including solar power technology, could be deterred by these
regulations and policies, which could result in a significant reduction in the
potential demand for the solar power products of Solar Energy Initiatives, Inc..
For example, without certain major incentive programs and or the regulatory
mandated exception for solar power systems, utility customers are often charged
interconnection or standby fees for putting distributed power generation on the
electric utility network. These fees could increase the cost to our customers of
using our solar power products and make them less desirable, thereby harming our
business, prospects, results of operations and financial condition.
We
anticipate that our solar power products and their installation will be subject
to oversight and regulation in accordance with national and local ordinances
relating to building codes, safety, environmental protection, utility
interconnection and metering and related matters. It is difficult to track the
requirements of individual states and design equipment to comply with the
varying standards. Any new government regulations or utility policies pertaining
to our solar power products may result in significant additional expenses to us
and our resellers and their customers and, as a result, could cause a
significant reduction in demand for our solar power products.
The
reduction or elimination of government economic incentives could prevent us from
achieving sales and market share.
20
We
believe that the near-term growth of the market for on-grid applications, where
solar power is used to supplement a customer’s electricity purchased from the
utility network or sold to a utility under tariff, depends in large part on the
availability and size of government and economic incentives. Because a
significant portion of our sales are expected to involve the on-grid market, the
reduction or elimination of government and economic incentives may adversely
affect the growth of this market or result in increased price competition, both
of which could cause our revenue to decline.
Today,
the cost of solar power exceeds retail electric rates in many locations. As a
result, federal, state and local government bodies in many countries, most
notably Germany, Japan, Spain, Italy, Portugal, South Korea and the United
States, have provided incentives in the form of feed-in tariffs, rebates,
tax credits and other incentives to end users, distributors, system integrators
and manufacturers of solar power products to promote the use of solar energy in
on-grid applications and to reduce dependency on other forms of energy. These
government economic incentives could be reduced or eliminated altogether. For
example, Germany has been a strong supporter of solar power products and systems
and political changes in Germany could result in significant reductions or
eliminations of incentives, including the reduction of feed-in tariffs more
rapidly than required by current law. Some solar program incentives expire,
decline over time, are limited in total funding or require renewal of authority.
Net metering and other operational policies in California, Japan or other
markets could limit the amount of solar power installed there. Reductions in, or
eliminations or expirations of, governmental incentives could result in
decreased demand for and lower revenue from our products. Changes in the level
or structure of a renewable portfolio standard could also result in decreased
demand for and lower revenue from our products.
Problems
with product quality or product performance we distribute could result in a
decrease in customers and revenue, unexpected expenses and loss of market
share.
The
solar products we plan to purchase are complex and must meet stringent quality
requirements. Products this complex may contain undetected errors or defects,
especially when first introduced. For example, solar panels may contain defects
that are not detected until after they are shipped or are installed because we
cannot test for all possible scenarios. These defects could cause us to, or may
cause us to request that suppliers incur significant re-engineering costs,
divert the attention of our personnel from product selling efforts and
significantly affect our customer relations and business reputation. If we
deliver solar panels with errors or defects, or if there is a perception that
such solar panels contain errors or defects, our credibility and the market
acceptance and sales of its solar power systems could be harmed.
21
Since
the solar products we plan to purchase and sell cannot be tested for the
duration of their standard multi-year warranty period, we may be subject to
unexpected warranty expense; if we are subject to installation, warranty and
product liability claims, such claims could adversely affect our business and
results of operations.
The
current standard product warranty for the solar products we intend to sell
includes a warranty period (up to ten-years) for defects in material and
workmanship and a warranty period (up to twenty five-years) for declines in
power performance as well as a typically one-year warranty on the functionality
of solar cells (for electricity producing solar
products). Due to the long warranty period and even though we
intend to pass through the warranty from the manufacturer, we may bear the risk
of extensive warranty claims long after we have shipped product and recognized
revenue. Any warranty claims that the manufacturer does not cover would
cause us to increase the amount of warranty reserves and have a corresponding
negative impact on our results. Although the manufacturers represent that they
conduct accelerated testing of their solar cells, our solar panels have not and
cannot be tested in an environment simulating the full warranty period. As
a result of the foregoing, we may be subject to unexpected warranty expense,
which in turn would harm our financial results.
Like
other retailers, distributors and manufacturers of products that are used by
consumers, we face an inherent risk of exposure to product liability claims in
the event that our solar products cause or their use result in injury. Our
business may be subject to warranty and product liability claims in the event
that its solar power systems fail to perform as expected or if a failure of its
solar power systems results, or is alleged to result, in bodily injury, property
damage or other damages. Since our planned solar energy products are electricity
and heat producing devices, it is possible that our products could result in
injury, whether by product malfunctions, defects, improper installation or other
causes. Moreover, we may not have adequate resources in the event of a
successful claim against us. We have evaluated the potential risks we face and
believe that we can obtain appropriate levels of insurance for product liability
claims. We will rely on our general liability insurance to cover product
liability claims and have not obtained separate product liability
insurance. However, a successful warranty or product liability claim against us
that is not covered by insurance or is in excess of our available insurance
limits could require us to make significant payments of damages. In addition,
quality issues can have various other ramifications, including delays in the
recognition of revenue, loss of revenue, loss of future sales opportunities,
increased costs associated with repairing or replacing products, and a negative
impact on our goodwill and reputation, which could also adversely affect our
business and operating results. Our business’ exposure to warranty and product
liability claims is expected to increase significantly in connection with its
planned expansion into the new home market.
Warranty
and product liability claims may result from defects or quality issues in
certain third party technology and components that we or our suppliers
incorporate into their/our solar power systems, particularly solar cells and
panels, over which we have no control. While our agreements with our suppliers
would generally include warranties, such provisions may not fully compensate us
for any loss associated with third-party claims caused by defects or quality
issues in such products. In the event we seek recourse through warranties, we
will also be dependent on the creditworthiness and continued existence of the
suppliers to our business.
22
We
anticipate that our current standard warranty will differ by geography and
end-customer application and will include such instruments as one-, two- or
five-year comprehensive parts and workmanship warranties, after which the
customer may typically extend the period covered by its warranty for an
additional fee. Due to the warranty period, our business bears the risk of
extensive warranty claims long after it has completed a project and recognized
revenues. Future product failures could cause our business to incur substantial
expenses to repair or replace defective products. While our business generally
passes through manufacturer warranties it receives from its suppliers to its
customers, it is responsible for repairing or replacing any defective parts
during its warranty period, often including those covered by manufacturers
warranties. If the manufacturer disputes or otherwise fails to honor its
warranty obligations, our business may be required to incur
substantial costs before it is compensated, if at all, by the manufacturer.
Furthermore, the ‘business’ warranties may exceed the period of any warranties
from our suppliers covering components included in its systems, such as
inverters.
The
products we intend to distribute may not gain market acceptance, which would
prevent us from achieving sales and market share.
The
development of a successful market for the products we intend to distribute may
be adversely affected by a number of factors, some of which are beyond our
control, including:
·
|
our
failure to offer products that compete favorably against other solar power
products or providers on the basis of cost, quality and
performance;
|
·
|
our
failure to offer products that compete favorably against conventional
energy sources and alternative distributed-generation technologies, such
as wind, biomass and solar thermal, on the basis of cost, quality and
performance;
|
·
|
our
failure to develop and maintain successful relationships with vendors,
distributors, systems integrators and other resellers, as well as
strategic partners.
|
If the
products we intend to distribute fail to gain market acceptance, we will be
unable to achieve sales and market share.
Technological
changes in the solar power industry could render the products we intend to
distribute uncompetitive or obsolete, which could prevent us from achieving
market share and sales.
Our
failure to seek new technologies and to be at the forefront of new product
offerings could cause us to become uncompetitive promoting less competitive or
obsolete systems, which could prevent us from achieving market share and sales.
The solar power industry is rapidly evolving and highly competitive. We may need
to invest significant financial resources to keep pace with technological
advances in the solar power industry and to compete in the future and we may be
unable to secure such financing. We believe that a variety of competing solar
power technologies may be under development by many companies that could result
in lower manufacturing costs or higher product performance than those products
selected by us. These development efforts may render obsolete the products we
have selected to offer, and other technologies may prove more advantageous for
the commercialization of solar power products.
23
The
market for solar power products is emerging and rapidly evolving, and its future
success is uncertain. If solar power technology proves unsuitable for widespread
commercial deployment or if demand for solar power products fails to develop
sufficiently, we would be unable to achieve sales and market share. In addition,
demand for solar power products in the markets and geographic regions we target
may not develop or may develop more slowly than we anticipate. Many factors will
influence the widespread adoption of solar power technology and demand for solar
power products, including:
·
|
cost-effectiveness
of solar power technologies as compared with conventional and competitive
alternative energy technologies;
|
·
|
performance
and reliability of solar power products as compared with conventional and
non-solar alternative energy products;
|
·
|
success
of alternative distributed generation technologies such as hydrogen fuel
cells, wind turbines, bio-diesel generators and large-scale solar thermal
technologies;
|
·
|
fluctuations
in economic and market conditions that impact the viability of
conventional and competitive alternative energy
sources;
|
·
|
increases
or decreases in the prices of oil, coal and natural
gas;
|
·
|
capital
expenditures by customers, which tend to decrease when the domestic or
foreign economies slow;
|
·
|
continued
deregulation of the electric power industry and broader energy industry;
and
|
·
|
availability
and or effectiveness of government subsidies and
incentives.
|
We
face intense competition from other companies producing solar power, system
integrators and other energy generation products. If we fail to compete
effectively, we may be unable to increase our market share and
sales.
The
mainstream power generation market and related product sectors are well
established and we are competing with power generation from more traditional
process that can generate power at lower costs than most renewable or
environmentally driven processes. Further, within the renewable power
generation and technologies markets we face competition from other methods of
producing renewable or environmentally positive power. Then, the solar power
market itself is intensely competitive and rapidly evolving. Our competitors
have established market positions more prominent than ours, and if we fail to
attract and retain customers and establish a successful distribution network for
our solar products, we may be unable to achieve sales and market share. There
are a number of major multi-national corporations that produce solar power
products, including; Suntech, Sunpower, FirstSolar, BP Solar, Kyocera, Sharp,
GE, Mitsubishi, Solar World AG and Sanyo. Also established integrators are
growing and consolidating, including groSolar, Sunwize, Sunenergy and Real Goods
Solar and we expect that future competition will include new entrants to the
solar power market. Further, many of our competitors are developing and are
currently producing products based on new solar power technologies that may have
costs similar to, or lower than, our projected costs.
24
Most of
our competitors are substantially larger than we are, have longer operating
histories and have substantially greater financial, technical, manufacturing and
other resources than we do. Our competitors' greater sizes in some cases
provides them with competitive advantages with respect to manufacturing costs
due to their ability to allocate fixed costs across a greater volume of
production and purchase raw materials at lower prices. They also have far
greater name recognition, an established distribution network and an installed
base of customers. In addition, many of our competitors have well-established
relationships with current and potential resellers, which have extensive
knowledge of our target markets. As a result, our competitors will be able to
devote greater resources to the research, development, promotion and sale of
their products and may be able to respond more quickly to evolving industry
standards and changing customer requirements than we can.
We
may not address successfully the problems encountered in connection with
any potential future acquisitions.
We
expect to consider future opportunities to acquire or make investments in other
technologies, products and businesses that could enhance our capabilities,
complement our products, or expand the breadth of our markets or customer base.
We have limited experience in acquiring other businesses and technologies.
Potential and completed acquisitions and strategic investments involve numerous
risks, including:
·
|
problems
assimilating the purchased technologies, products or business
operations;
|
·
|
problems
maintaining uniform standards, procedures, controls and
policies;
|
·
|
problems
arising from non-performance of acquired entities or
assets;
|
·
|
problems
arising from overvaluation or with securing the required financing to
close and/or make the acquisition
operational;
|
·
|
unanticipated
costs associated with an acquisition;
|
·
|
diversion
of management's attention from our core business;
|
·
|
adverse
effects on existing business relationships with suppliers and
customers;
|
·
|
risks
associated with entering new markets in which we have no or limited prior
experience;
|
·
|
potential
loss of key employees of acquired businesses; and
|
·
|
increased
legal and accounting costs as a result of the newly adopted rules and
regulations related to the Sarbanes-Oxley Act of 2002 and other such
regulation such as increased internal control and reporting
requirements.
|
25
We
are subject to corporate governance and internal control reporting requirements,
and our costs related to compliance with, or our failure to comply with existing
and future requirements, could adversely affect our business.
Under the
proposed rules, an attestation report on our internal controls from our
independent registered public accounting firm may be required as part of our
annual report for the fiscal year ending in 2009. We are in the process of
evaluating our control structure to help ensure that we will be able to comply
with Section 404 of the Sarbanes-Oxley Act. The financial cost of compliance
with these laws, rules and regulations is expected to be substantial. We cannot
assure you that we will be able to fully comply with these laws, rules and
regulations that address corporate governance, internal control reporting and
similar matters. Failure to comply with these laws, rules and regulations could
materially adversely affect our reputation, financial condition and the value of
our securities.
Our solar
business competes with a large number of competitors in the solar power market,
including integrators such as groSolar, Sunwize, Sunenergy and Real Goods Solar,
and manufacturers that may also directly supply projects at costs we cannot
compete with, including Suntech, BP Solar, FirstSolar, SolarWorld AG and others.
In addition, alternative technologies such as thin films and concentrators,
which may compete with our technology in certain applications, continue to make
market penetration. We expect to face increased competition in the future.
Further, many of our competitors are developing and are currently producing
products based on new solar power technologies that may ultimately have costs
similar to, or lower than, our projected costs.
Our solar
power products and services compete against other power generation sources
including conventional fossil fuels supplied by utilities, other alternative
energy sources such as wind, biomass, concentrated solar power “CSP” and
emerging distributed generation technologies such as micro-turbines, sterling
engines and fuel cells. In the large-scale on-grid solar power systems market,
we will face direct competition from a number of companies that manufacture,
distribute, or install solar power systems. Our primary competitors
in the United States include Arizona Public Service Company, BP Solar
International, Inc., a subsidiary of BP p.l.c., Conergy Inc., Dome-Tech Group,
Eastwood Energy, EI Solutions, Inc., Florida Power and Light, GE Energy, a
subsidiary of General Electric Corporation, Global Solar Energy, Inc., a
subsidiary of Solon, groSolar, Power-Fab, Real Goods Solar, Schott Solar, Inc.,
Solar Integrated Technologies, Inc., SPG Solar, Inc., Sun Edison LLC, Suntech,
SunTechnics Installation & Services, Inc., Sunwize, Sunenergy, Thompson
Technology Industries, Inc. and WorldWater & Power Corporation. Our
primary competitors in Europe include BP Solar, Conergy (through its
subsidiaries AET Alternitive Energie Technik GmbH, SunTechnics Solartechnik GmbH
and voltwerk AG), PV-Systemtechnik Gbr, SAG Solarstrom AG, Solon AG and Taufer
Solar GmbH. Additionally, our business will occasionally compete with
distributed generation equipment suppliers such as Caterpillar, Inc. and
Cummins Inc. Other existing and potential competitors in the solar power market
include universities and research institutions. We also expect that future
competition will include new entrants to the solar power market offering new
technological solutions. As we enter new markets and pursue additional
applications for our products and services, we expect to face increased
competition, which may result in price reductions, reduced margins or
loss of market share.
26
Competition
is intense, and many of our competitors have significantly greater access to
financial, technical, manufacturing, marketing, management and other resources
than we do. Many also have greater name recognition, a more established
distribution network and a larger installed base of customers. In addition, many
of our competitors have well-established relationships with our potential
suppliers, resellers and their customers and have extensive knowledge of our
target markets. As a result, these competitors may be able to devote greater
resources to the research, development, promotion and sale of their products and
respond more quickly to evolving industry standards and changing customer
requirements than we will be able to. Consolidation or strategic alliances among
such competitors may strengthen these advantages and may provide them greater
access to customers or new technologies. To the extent that government funding
for research and development grants, customer tax rebates and other programs
that promote the use of solar and other renewable forms of energy are limited,
we will compete for such funds, both directly and indirectly, with other
renewable energy providers and their customers.
If we
cannot compete successfully in the solar power industry, our operating results
and financial condition will be adversely affected. Furthermore, we expect
competition in the targeted markets to increase, which could result in lower
prices or reduced demand for our product and service offerings and may have a
material adverse effect on our business and results of operations.
The
demand for products requiring significant initial capital expenditures such as
our solar power products and services are affected by general economic
conditions.
The
United States and countries world wide have recently experienced a period of
declining economies and unprecedented turmoil in financial markets. A sustained
economic recovery is uncertain. In particular, terrorist acts and similar
events, continued unrest in the Middle East or war in general could contribute
to a slowdown of the market demand for products that require significant initial
capital expenditures, including demand for solar power systems and new
residential and commercial buildings. In addition, increases in interest rates
may increase financing costs to customers, which in turn may decrease demand for
our solar power products. If an economic recovery is slowed as a result of the
recent economic, political and social events, or if there are further terrorist
attacks in the United States or elsewhere, we may experience decreases in the
demand for our solar power products, which may harm our operating
results.
27
We will
seek to protect our proprietary supplier and operational processes,
documentation and other written materials primarily under trade secret and
copyright laws. We also typically require employees and consultants with access
to our proprietary information to execute confidentiality agreements. The steps
taken by us to protect our proprietary information may not be adequate to
prevent misappropriation of our technology. In addition, our proprietary rights
may not be adequately protected because:
•
|
people
may not be deterred from misappropriating our operational assets despite
the existence of laws or contracts prohibiting it;
|
||
•
|
policing
unauthorized use of our intellectual property may be difficult, expensive
and time-consuming, and we may be unable to determine the extent of any
unauthorized use; and
|
||
•
|
the
laws of other countries in which we access and or market our solar cells,
such as some countries in the Asia/Pacific region, may offer little or no
protection for our proprietary
technologies.
|
Unauthorized
copying or other misappropriation of our proprietary assets could enable third
parties to benefit from our property without paying us for doing so. Any
inability to adequately protect our proprietary rights could harm our ability to
compete, to generate revenue and to grow our business.
We
rely on suppliers to comply with intellectual property, copy write, hazardous
materials and processes and trade secrecy laws and regulations and, if such laws
and regulations are not sufficiently followed, our business could suffer
substantially.
We
endeavor to comply with all law and regulation regarding intellectual property
law manufacturing process law and regulation, however, in many cases it is our
supplier that must comply with such regulations and laws. While we
make efforts to ensure that products sourced from third parties comply with
required regulation and law and that the operation of our suppliers do as well,
our business could suffer if a supplier was, or suppliers were, found to be non
compliant with regulation and law in our, our customers’ or our suppliers’
jurisdictions.
Compliance
with environmental regulations can be expensive, and noncompliance with these
regulations may result in adverse publicity and potentially significant monetary
damages and fines for us.
We are
required to comply with all foreign, U.S. federal, state and local laws and
regulations regarding pollution control and protection of the environment. In
addition, under some statutes and regulations, a government agency, or other
parties, may seek recovery and response costs from operators of property where
releases of hazardous substances have occurred or are ongoing, even if the
operator was not responsible for such release or otherwise at fault. In the
course of future business we may use, generate and discharge toxic, volatile and
otherwise hazardous chemicals and wastes in our operations or related research
and development and manufacturing activities. Any failure by us to control the
use of, or to restrict adequately the discharge of, hazardous substances could
subject us to potentially significant monetary damages and fines or suspensions
in our business operations. In addition, if more stringent laws and regulations
are adopted in the future, the costs of compliance with these new laws and
regulations could be substantial. If we fail to comply with present or future
environmental laws and regulations we may be required to pay substantial fines,
suspend production or cease operations.
28
There
are restrictions on the transferability of the securities.
Until
registered for resale, investors must bear the economic risk of an investment in
the Shares for an indefinite period of time. Rule 144 promulgated under the
Securities Act (“Rule 144”), which provides for an exemption from the
registration requirements under the Securities Act under certain conditions,
requires, among other conditions, a six month holding period prior to the resale
(in limited amounts) of securities acquired in a non-public offering without
having to satisfy the registration requirements under the Securities Act and
that the Company is current in its filings. There is no guarantee
that we will continue to maintain our public filings.
If
we violated certain securities laws, we may not now be able to privately offer
our equity securities for sale.
Any
offering of our equity securities in or from the United States must be
registered with the SEC or be exempt from registration. If our prior offers and
sales were not exempt from registration, it is likely that they would be deemed
integrated with future offerings unless we do not offer equity securities for at
least six months. In the event of such integration, we would only be permitted
to offer and sell equity securities after we file one or more new registration
statements with the SEC and the registration statements have become effective.
The registration process is both expensive and can be expected to take at least
several months and would substantially hinder our efforts to obtain
funds.
If
the Company uses its stock in acquisitions of other entities there may be
substantial dilution at the time of a transaction.
If the
price of our common stock used for an acquisition is less than the amount paid
by our shareholders, substantial dilution may be
experienced. Additional dilution may be experienced by the sale of
additional shares of common stock or other securities, or if the Company’s
shares are issued to purchase other entities assets.
Our
common stock is subject to the “Penny Stock” rules of the SEC.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:
|
that
a broker or dealer approve a person's account for transactions in penny
stocks; and the broker or dealer receive from the investor a
written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be
purchased.
|
29
In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
|
obtain
financial information and investment experience objectives of the person;
and make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of evaluating
the risks of transactions in penny
stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
|
sets
forth the basis on which the broker or dealer made the suitability
determination; and
|
|
that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
If
we fail to remain current on our reporting requirements, we could be removed
from the OTC Bulletin Board which would limit the ability of broker-dealers to
sell our securities and the ability of stockholders to sell their securities in
the secondary market.
Companies
trading on the Over-The-Counter Bulletin Board, , and must be current in their
reports with the Securities and Exchange Commission, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements, we could be removed from the OTC Bulletin Board. As
a result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary
market. In addition, we may be unable to get re-listed on the
OTC Bulletin Board, which may have an adverse material effect on our
Company.
30
Our common stock may be adversely
affected by limited trading volume and the market price may fluctuate
significantly, which may negatively affect our stockholders’ ability to sell
their shares.
While the
trading time and average stock volumes have increased over time, there can be no
assurance that an active trading market will be sustained. An absence of an
active trading market can be expected to adversely affect our stockholders’
ability to sell their shares. Our common stock has experienced, and is likely to
experience in the future, significant price and volume fluctuations, which could
adversely affect the market price without regard to our operating performance.
In addition, we believe that factors such as quarterly fluctuations in our
financial results and changes in the overall economy or the condition of the
financial markets could cause the price of our common stock to fluctuate
substantially. These fluctuations may also cause short sellers to enter the
market from time to time in the belief that our share price will decline. We
cannot predict whether the market for our shares will be stable or appreciate
over time.
Because
of the concentration of ownership of our common stock by a small number of
stockholders, it is unlikely that any other holder of common stock will be able
to affect our management or direction.
On
October 22, 2009, our directors, officers and certain of their affiliates were
deemed to beneficially own approximately 24.36% of our outstanding common
stock. Accordingly, if these stockholders act together as a group,
they would most likely be able to control the outcome of stockholder votes,
including votes concerning the election of directors, the adoption or amendment
of provisions in our certificate of incorporation and bylaws and the approval of
significant corporate transactions. The existence of ownership concentrated in a
few persons may have the effect of delaying or preventing a change in management
or voting control. Furthermore, the interests of our controlling stockholders
could conflict with those of our other stockholders.
Because
each of our executive officers may voluntarily terminate his employment with us
at any time on at least 30 days prior written notice to us, we can not be sure
if any of them will maintain their position with us for the foreseeable
future.
In the
event any of our executive officers terminate their employment with us, we may
not be able to find suitable replacements on similar terms, if at
all.
Although we plan on maintaining
commercial insurance to reduce some operating hazard risks, such insurance may
not be available to us at economically feasible rates, if at
all.
In the
absence of suitable insurance, we may be exposed to claims and litigation which
we will not be financially able to defend or we may be subject to judgments
which may be for amounts greater than our ability to pay.
Future sales by our stockholders may
adversely affect our stock price and our ability to raise funds in future equity
offerings.
Sales of
our common stock in the public market, including sales made by the selling
stockholders identified in the registration statement we have filed with the
SEC, may lower the market price of our common stock. Sales may also make it more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that our management deems acceptable or at all. Of
the 15,702,291 shares held by persons who are not our affiliates on July 31,
2009 approximately 8,104,740 shares were freely tradable without restriction or
further registration under the Securities Act of 1933. In addition,
approximately 775,000 additional shares were sold in accordance with Rule 144
under that Act and approximately 6,822,551 more shares will be able to be sold
within the ensuing twelve month period.
31
Anti-takeover provisions could make a
third-party acquisition of us difficult which may adversely affect the market
price and the voting and other rights of the holders of our common
stock.
Certain
provisions of the Delaware General Corporation Law may delay, discourage or
prevent a change in control. The provisions may discourage bids for our common
stock at a premium over the market price. Furthermore, the authorized but
unissued shares of our common stock are available for future issuance by us
without our stockholders' approval. These additional shares may be utilized for
a variety of corporate purposes including but not limited to future public or
direct offerings to raise additional capital, corporate acquisitions and
employee incentive plans. The issuance of such shares may also be used to deter
a potential takeover of us that may otherwise be beneficial to our stockholders.
A takeover may be beneficial to stockholders because, among other reasons, a
potential suitor may offer stockholders a premium for their shares above the
then market price.
The
existence of authorized but unissued and unreserved shares may enable the Board
of Directors to issue shares to persons friendly to current management which
would render more difficult or discourage an attempt to obtain control of us by
means of a proxy contest, tender offer, merger or otherwise, and thereby protect
the continuity of our management.
The
Company, as a smaller reporting company, is not required to provide the
information required by this item.
Item 2.
Description of Property.
On
October 1, 2008 we entered into two lease agreements for office and
warehouse/assembly space. Our corporate headquarters are located at
818 A1A, Suite 202, Ponte Vedra Beach, FL 32082. The
annual rent for 3,357 square feet of office space is $38,669 and we have entered
into a 30 month lease. In addition, we leased 6,000 square feet of
warehouse/assembly and office space for Solar Energy, Inc.’s
operations. Located at 10330 Chedoak Ct., Suite 101, Jacksonville,
FL 32218, our annual lease cost will be $45,600 and we have entered
into a 36 month lease.
32
Item 3.
Legal Proceedings.
Other
than routine litigation arising in the ordinary course of business that we do
not expect, individually or in the aggregate, to have a material adverse effect
on us, there is no currently no pending legal proceeding and, as far as we are
aware, no governmental authority is contemplating any proceeding to which we may
be a party or to which any of our properties is subject.
We are
currently in a dispute stemming from a transaction with David H. Smith and
Sunset Power Inc in 2008. The Company claims that Mr. Smith has
breached certain non-compete covenants. Any potential consideration
to remedy the economic impact of a proved breach of contract is limited to the
amounts remaining under the promissory note due to Mr.
Smith. Discovery and negotiations are ongoing.
Item 4. Submission
of Matters to a Vote of Security Holders.
There
were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
PART
II
Item 5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
From July
15, 2008 through August 23, 2008, our common stock was quoted on the OTC
Bulletin Board under the trading symbol “NPCX,” and since August 24, 2008, our
trading symbol has been “SNRY.OB”.
The
following table sets forth quarterly high and low bid prices of a share of our
common stock as reported by the OTC Bulletin Board for the years 2009 and 2008.
Prior to July 15, 2008, there was no active market for our common
stock. The quotations listed below reflect inter-dealer prices,
without mark-ups, mark-downs or commissions and may not necessarily reflect
actual transactions.
Price
|
||||||||
High
$
|
Low
$
|
|||||||
2010
|
||||||||
First
quarter ended October 31, 2009*
|
$
|
0.51
|
$
|
0.30
|
||||
2009
|
||||||||
Fourth
quarter ended July 31, 2009
|
$
|
0.70
|
$
|
0.25
|
||||
Third
quarter ended April 30, 2009
|
$
|
0.56
|
$
|
0.17
|
||||
Second
quarter ended January 31, 2009
|
$
|
0.52
|
$
|
0.13
|
||||
First
quarter ended October 31, 2008
|
$
|
1.00
|
$
|
0.15
|
||||
2008
|
||||||||
Fourth
quarter ended July 31, 2008
|
$
|
0.57
|
$
|
0.55
|
||||
Third
quarter ended April 30, 2008
|
NA
|
NA
|
||||||
Second
quarter ended January 31, 2008
|
NA
|
NA
|
||||||
First
quarter ended October 31, 2007
|
NA
|
NA
|
*Through
October 23, 2009
33
On July
30, 2008, the authorized number of shares of the Company was increased from
15,000,000 to 100,000,000.
The
closing price of our common stock on the OTC Bulletin Board on October 23, 2009
was $0.40 per share.
On
October 23, 2009, our common stock was held of record by approximately 354
shareholders.
Dividends
We have
not previously paid any cash dividends on our common stock and do not anticipate
or contemplate paying dividends on our common stock in the foreseeable future.
We currently intend to use all available funds to develop our business. We can
give no assurances that we will ever have excess funds available to pay
dividends.
Equity
Compensation Plan Information
The
Company does not have a formal equity compensation plan. Any equity
that is issued as compensation is based upon Board of Director
approval.
Item
6. Selected Financial Data
Pursuant
to Item 301(c) of Regulation S-K. the Company, as a smaller reporting company,
is not required to provide the information required by this item.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
This
discussion should be read in conjunction with our consolidated financial
statements included in this Annual Report on Form 10-K and the notes thereto, as
well as the other sections of this Annual Report on Form 10-K , including
“Certain Risks and Uncertainties” and “Description of Business” sections
thereof. This discussion contains a number of forward-looking statements, all of
which are based on our current expectations and could be affected by the
uncertainties and risk factors described throughout this Annual Report. Our
actual results may differ materially.
Limited
Operating History
There is
limited historical financial information about our company upon which to base an
evaluation of our future performance. Our Company generated
$3,821,610 in revenues for the fiscal year ended July 31, 2009. We
cannot guarantee that we will be successful in our business. We are
subject to risks inherent in a fast growing company, including limited capital
resources, possible delays in developing our sales channels, and possible margin
reductions due to pricing inefficiencies and competition. There is no
assurance that future financing will be available to our Company on acceptable
terms. Additional equity financing could result in dilution to existing
shareholders.
34
Company
Description and Overview
The
Company was formed on June 20, 2006. We market, sell and design solar
power systems for residential and commercial customers, market, sell, design,
own and operate solar power systems for municipal and commercial customers and
design, develop and manage solar parks. We intend to initially serve
customers in states that have high cost of electricity, and/or attractive
incentive programs for solar installations. For the fiscal year just
ended, we generated more than $3.8 Million in revenues and had a ($2.6 Million)
loss from operations. We source solar components from third party
manufacturers and have entered into supply agreement(s) with manufacturers of
solar electric power products and technologies that directly convert sunlight
into electricity and thermal (heat) energy. The originating founders,
directors and officers of our company were Paul Cox, David Fann and Michael
Dodak who served as the President, Chief Executive Officer/Secretary and
Treasurer, respectively.
In July
2006, we entered into a convertible debenture with a waste to energy development
company, Envortus Inc. As such time, we intended to develop a business in the
waste to energy market and this was our initial foray in to the
market. The officers and board members of The Company had ownership,
officer positions and board positions in Envortus Inc. Under the terms of the
convertible debenture, the Company could invest $250,000 in Envortus Inc over a
period of time. The Company forwarded a total of $134,500 to Envortus Inc before
deciding to continue its focus specifically in the solar area of the renewable
energy market instead of waste to energy. The Company utilized funds raised from
the sale of common stock and convertible debentures in order to fund the loan to
Envortus Inc.
In March
2007, the Company entered into an agreement to sell the convertible debenture
for $152,500, with discounts if paid early, to 0784655 B.C. LTD (“B.C.”), a
company controlled by Paul Cox, a shareholder and a former officer and board
member of the Company. Mr. Cox remains a shareholder, officer and board member
of Envortus Inc. In July 2007, the sale of the convertible debenture was
completed with a payment of $55,000 to the Company and the receipt of a
promissory note in the amount of $97,500 (the “Note”), from B.C. for the
balance. The principal amount of the Note was immediately discounted
to $90,800. In addition, if the Note was paid within the first 270
days of issuance, additional discounts could be available.
To
account for the Note the Company determined the fair value of the Note on a
discounted basis to be equal to $68,100, which represented the discounted
balance to be paid by B.C. assuming early payments made within 90 days from
closing as provided in the Note. Based on the fair value of the note
of $68,100, a loss totaling $11,405 was recorded for the year ended July 31,
2008 as reflected in the table below:
Consideration
for sale of debenture:
|
||||
$
|
55,000
|
|||
Note
receivable
|
97,500
|
|||
Total
consideration
|
152,500
|
|||
Immediate
discount
|
(6,700
|
)
|
||
Bank
fee
|
(5
|
)
|
||
Expected
early payment discount
|
(22,700
|
)
|
||
Total
net consideration
|
123,095
|
|||
Investment
in convertible debenture
|
134,500
|
|||
Loss
on sale of investment
|
$
|
(11,405
|
)
|
35
The
Company had originally invested $134,500 in a convertible debenture with
Envortus. The Company then took back a Note for $97,500 and cash paid
back of $55,000. The Company reviewed the fair value of the $97,500
Note, which had an immediate discount of $6,700 and an early expected payment
discount of $22,700. The Company decided to take a valuation
allowance on the $22,700 and the $6,700 during July 2007, leaving a balance on
the Note of $68,100. Comparing the consideration received of $55,000
and the remaining value of the Note at $68,100 or $123,095, net of a $5 fee,
this resulted in a loss on sale of the original investment in convertible
debenture of $11,405. The Company has allowed for the remaining
balance of the Note and recorded bad debt related to note receivable, related
party, in the amount of $68,100, due to concerns of collectability and
non-payment of the scheduled payments. Per the terms of the Note,
B.C. was required to pay principal in the amount of $10,000 in January 2008 and
additional payments of $17,240 in July 2008, $31,780 in January 2009 and $31,780
in July 2009, together with interest, according to the payment schedule as
defined by the Note when the early payments are not received. As of
the date hereof, B.C. has not made the required principal and interest
payment. The Company is pursuing legal action against the Note’s
obligor for non payment.
On August
21, 2008, the Company entered into and closed a Website Purchase
Agreement (the “WPA”) with Solar Energy, Inc. (“SEI”) and the shareholders of
SEI pursuant to which the Company acquired the Domain Name, www.solarenergy.com
, the web site that uses the domain name, the name Solar Energy, Inc. and
all trade rights associated with these assets (collectively, the “SEI
Assets”).
In
consideration for the purchase and sale of the SEI Assets, the Company assumed
various liabilities, made a cash payment of $160,000 at closing, issued the
seller a secured note, collateralized by a lien on the assets referenced in the
Website Purchase Agreement, in the principal amount of $840,000 with
7.5% interest that is payable over a period of 21 months with payments of
$40,000 per month and issued the seller 1,000,000 shares of common stock of the
Company.
36
In
May 2009, the Company finalized a contract with a school district in the western
United States to install and operate a photovoltaic solar system, on
school facilities. Solar Energy Initiatives entered into the Power Purchase
Agreement (“PPA”) with the school district and supplied the solar equipment for
the installation on the locations within the school district. A
separate company (“LLC”) was formed to own and operate the solar system and sell
the generated solar energy to the school district at a discounted rate compared
to the current electricity provider. Solar Energy Initiatives identified and
contracted with a construction management company and funding source to buy and
install the solar system at no “out of pocket” cost to the school district.
Solar Energy Initiatives has assigned the PPA and construction contracts to the
LLC and is to receive an economic interest in the LLC which would provide a
portion of the net income derived from the revenue of the energy sold to the
school district to the Company. As of
October 23, 2009 we are still negotiating a final LLC ownership percentage for
the Company.
Results
of Operations
The
following table sets forth our statements of operations data for the years ended
July 31, 2009, and 2008.
Summary
Income Statement
July 31, 2009 | July 31, 2008 | |||||||
Revenues,
net
|
$ | 3,821,610 | $ | -0- | ||||
Gross
profit (loss)
|
797,971 | -0- | ||||||
Selling,
general and administrative expenses
|
3,461,128 | 1,587,236 | ||||||
Total
operating expenses
|
3,461,128 | 1,587,236 | ||||||
Loss
from operations
|
(2,663,157 | ) | (1,587,236 | ) | ||||
Other
Income (Expense)
|
(492,112 | ) | (57,729 | ) | ||||
Loss
from operations before income taxes
|
(3,155,269 | ) | (1,644,965 | ) | ||||
Income
tax provision
|
- | - | ||||||
Net
loss
|
$ | (3,155,269 | ) | $ | (1,644,965 | ) |
37
Revenues
For the
years ending July 31, 2009 and 2008, we had revenues of $3,821,610 and $0,
respectively. The change in revenues are due to beginning
operations and are derived from the training of our new dealers and the sale of
product.
Cost
of sales
For the
years ending July 31, 2009 and 2008, we had cost of sales of $3,023,639 and $0,
respectively. As we began to generate revenue and record sales
in this fiscal year, we generated a cost of sales expense.
Selling,
general and administrative
Selling,
general and administrative expenses for the year ended July 31, 2009 and July
31, 2008 were $3,461,128 and $1,587,236, respectively. Cash-based
management fees, wages and salaries were $625,416 for fiscal 2009 and $493,513
for fiscal 2008, the increase is due to the addition of
employees. Management consulting fees were $464,492 for fiscal
2009 and $74,938 for fiscal 2008, travel and entertainment was $135,433 for
fiscal 2009 and $128,710 for fiscal 2008, and legal and professional costs
totaled $232,810 for fiscal 2009 and $124,241 in fiscal 2008, of which the
increases primarily relate to our acquisition costs, financing
activities, the preparation and filing of a registration statement and SEC
reporting.
Research
& development
For the
years ended July 31, 2009 and 2008, we did not record research and development
expenses and have reclassified expenses from prior periods to selling, general
and administrative categories which were previously identified as research and
development costs.
Other
income (expense)
In fiscal
2009 other expenses was $492,112 of which $498,591 was interest expense,
consisting of convertible debentures, interest for the note payable, and loans
from related parties in addition to $6,279 in other
income. In fiscal 2008, other expense was $57,729 of
which $68,100 was a bad debt related to notes receivables from a related party
and $10,371 was interest income.
Net
Loss
Our net
loss was $3,155,269 for 2009 and $1,644,965 for 2008. The net loss
primarily reflects our expenses relating to the preparation of a registration
statement and financings, the cost of additional employees to pursue our
strategy and expenditures for research and development. These expenses have been
incurred ahead of our ability to recognize sufficient revenues from our business
activities to generate a profit.
As of
July 31, 2009, we had cash of $1,005,628, and working capital deficit of
($140,347) compared with $366,665 and $263,789 in cash and working capital,
respectively, in 2008. During the years ended July 31, 2009 and 2008,
we primarily funded our operations from private sales of equity
securities.
38
For the
year ended July 31, 2009, we used $543,525 of cash in
operations. Investing activities used $162,312 of cash during the
year and financing activities provided $1,344,850 of net cash during the
year, which resulted primarily from private placement subscription, and
convertible debenture proceeds. During fiscal year 2008, we used
$825,310 of cash in operations. Investing activities for 2008 were
$31,211 and we received $1,056,955 from private placements financing
activities.
The cost
of our photovoltaic and solar thermal products is somewhat volatile and is
influenced by supply and demand of components. While the cost of solar PV panels
dropped significantly during our FY 2009, we are uncertain of the extent to
which these reductions will be sustained or it there will be other factors that
affect our ability to affectively grow our business in the near future. A
significant increase in cost of materials that we cannot pass on to our
customers could cause us to run out of cash which we are not forecasting in our
future plans, and would require us to raise additional funds or curtail
operations.
As we
continue to increase the level of management and other operating requirements of
developing our business, our cash needs have increased and therefore we will
need to execute on our business plans which include positive cash flow
operations, and/or acquire additional financing to supplement cash
flows. Unless we can attain sufficient levels of revenues, we will
need to raise additional funds during the next twelve month
period. For the fiscal year ended July 31, 2009 we have been able to
obtain approximately $1,300,000 of capital through equity
financing. We may require approximately $1,000,000 of additional
capital funding, to allow us to continue the execution of our business plan
through July 31, 2010. If we are not successful in raising the
required capital, or begin one or more of the projects in our business pipeline,
we will need to reduce the breadth of our business.
As we
proceed through the year we anticipate adding staff such as project management
staff, sales and marketing staff, solar engineers, and accounting and
administrative staff. We expect, although we cannot guarantee, that most of
these staff additions will precede revenue generation and are included in the
requirements listed above. As of now there still exists an imbalance between
supply of solar panels (which is high) and demand which is low. This has led to
a significant reduction in the selling price for solar panels over the past
year. We expect that additional supply of solar panels from various
manufacturers will be available and the trend of reduced prices to
continue. While this bodes well for the overall economics of the sale
of solar to potential customers, increased competition and the reduction in
revenue per project or less gross margin on each panel sold which could cause
additional capital to be required.
Since
inception, our operations have primarily been funded through private equity
financing, and convertible debt. We expect to continue to seek
additional funding through private or public equity and debt financing as our
business expands, and potentially seek a larger funding round to quickly drive
the business forward.
39
However,
there can be no assurance that our plans discussed above will materialize and/or
that we will be successful in funding our estimated cash shortfalls through
additional debt or equity capital and/or any cash generated by our operations.
These factors, among others, indicate that we may be unable to continue as a
going concern for a reasonable period of time.
In
November 2008, the Company entered into a convertible debenture agreement for
$325,000 with four private investors. The debenture is convertible
into 1,300,000 shares of common stock at $0.25 per share. In
addition, we issued 1,000,000 “A” Warrants and 1,000,000 “B” warrants
exercisable on a cash basis equal to $0.50 and $1.00
respectively. The A warrants can be exercised for cash and will
survive for two years from the closing date. The “B” warrants can be
exercised for cash and will survive three years from the Closing
Date. The Company shall have the right to call the “A” warrants if
its stock trades at or is otherwise valued at, or above $1.00 per share for 10
consecutive days. The Company shall have the right to call the
“B” warrants if its stock trades at, or is otherwise valued at, or above $1.50
per share for 10 consecutive days. The Company shall have the right,
upon written notice to the holder to reduce the exercise period of the Warrants
to a period of 15 days beginning on the date of the written
notice. Each of the four private investors were issued
convertible debentures with an interest rate of 12% per annum based on the
number of days the debt has been outstanding, from the date of the loan through
the date of repayment. The warrant component of the
promissory notes was valued at $144,493 using the Black- Sholes
Method. Additionally, the Company recorded a beneficial
conversion feature totaling $180,507. The value of the warrants and
the beneficial conversion feature was recorded as a discount to the convertible
debenture and $325,000 was expensed through July 31, 2009. The
debentures were converted to stock as of July 21, 2009. Common
stock shares for 1,300,000 shares were issued and interest of $28,093 was paid
in August 2009
To
operate our current business groups, we may need up to $1.0 million in funds
over the next twelve months. Part of this funding may be needed as the time
required to realize revenues and cash from large commercial projects can be
lengthy, with costs to develop these projects incurred up front. As of July 31,
2009 we had approximately $1,005,628 in cash on hand which means there will be
an anticipated shortfall of $1.1 million as we project our current cash
requirements for the next twelve months. To sustain operations and
continue development, we expect that will need to raise additional
capital. As of our fiscal year end, there were no known demands or
commitments, other than the note to the seller, employment agreements of the
executives and our current lease commitments, that will necessitate
liquidation of the Company. The current level of cash is
not enough to cover the note, employment agreements and office rent for the
next twelve months.
Assuming
we are successful in our sales/development effort we believe that we will be
able to raise additional funds through the sale of our stock to either
current or new shareholders. Of course there is no guarantee that we will
be able to raise additional funds or to do so at an advantageous
price.
40
Critical
Accounting Policies
Use of Estimates -
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. The reported amounts of revenues and expenses during
the reporting period may be affected by the estimates and assumptions we are
required to make. Estimates that are critical to the accompanying financial
statements arise from our belief that we will secure an a d equate amount of
cash to continue as a going concern, that our allowance for doubtful accounts is
adequate to cover potential losses in our receivable portfolio, that all
long-lived assets are recoverable. The markets for our products are
characterized by intense competition, rapid technological development, evolving
standards, short product life cycles and price competition, all of which could
impact the future realization of our assets. Estimates and assumptions are
reviewed periodically and the effects of revisions are reflected in the period
that they are determined to be necessary. It is at least reasonably possible
that our estimates could change in the near term with respect to these
matters.
Revenue Recognition -
The Company recognizes revenue in accordance with the Securities and Exchange
Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue
Recognition”. The Company generates revenue from training, the sale of
photovoltaic panels, photovoltaic roofing systems, solar thermal products,
balance of system products, and management system products to our dealer network
or other parties. The Company anticipates it will not perform any
installations. SAB No. 104 requires that four basic criteria must be met before
revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services rendered; (3) the
seller's price to the buyer is fixed and determinable; and
(4) collectability is reasonably assured. Amounts billed or received from
customers in advance of performance are recorded as deferred
revenue.
Significant
Capital Expenditures
During
the year ended July 31, 2009, we acquired approximately $27,312 of furniture and
equipment for office purposes.
Subsequent
Events
In August
2009, the Company settled a dispute with Bradley C. Holt at which time Mr. Holt
resigned as a Consultant to and Director of the Company.
41
In August
2009, Michael Dodak assumed the position of COO.
In August 2009, Chris Wirth joined the
Company as Director of Marketing. In October 2009, he was promoted to
Chief Marketing Officer.
In
September 2009, the Company announced a partnership with three Jacksonville job
training and placement agencies to train displaced workers as solar energy
installation and maintenance technicians. This new partnership is a first step
in Solar Energy’s Renew the
Nation campaign intended to promote job growth and economic development
nationwide by providing a trained workforce to enter the fast growing renewable
energy industry. The program, pending final approval by the Jacksonville City
Council, is being funded in part by $396,000 in federal stimulus dollars
provided by the American Recovery and Reinvestment Act of 2009.
In
September 2009 the Company announced Letters of Intent for commercial
projects and that it had signed a lease securing land for the development of a
solar park in west Texas that, if fully developed, could achieve 300 megawatts
of rated capacity, or more. The closing of the development of the aforementioned
commercial projects is subject to finalizing definitive agreements, due
diligence, obtaining financing and board approval. As such, there is
no guarantee that we will successfully close these projects or generate revenue
associated with these projects.
On
September 22, 2009 the Company announced an offer to all holders of its Warrants
that it would reduce the exercise price on the Warrants to $0.30 per share for a
temporary period. During the temporary Warrant exercise price
reduction period, which ended October 15, 2009, 2,038,500 Warrants were
exercised at $0.30 into a corresponding number of shares of common stock for a
total of $611,549. The shares were issued on October 15, 2009.
In September 2009 the Company
authorized an additional 5,000,000 options for the 2009 Incentive Stock
Plan.
On
September 25, 2009 the Company formed Solar Park Initiatives Inc, a wholly owned
subsidiary. In October 2009, the Company announced that it will be spinning-off
Solar Park Initiatives, Inc., to its shareholders of record as of October 15,
2009, and that it hired Mr. Michael Gorton as the CEO of the new
company. The Company’s shareholders of record, as of October 15,
2009, will receive one common share of Solar Park Initiatives, Inc. for every
two common shares of the Company owned. The distribution
of such shares is contingent upon Solar Park Initiatives Inc. making the
required filings with the Securities and Exchange Commission.
42
In
September 2009, two related parties loaned the Company a total of $100,000 with
an interest rate of 12%, per annum on the unpaid balance and 1 share of common
stock per $1.00 loaned. The shares were issued in
October.
Item
7A. Quantitative and Qualitative Disclosure About Market Risk
Pursuant
to Item 305(e) of Regulation S-K. the Company, as a smaller reporting company,
is not required to provide the information required by this item.
Item
8. Financial Statements. and Supplementary Data
Our
Consolidated Financial Statements and related notes begin on Page F-1 of this
Annual Report.
Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item
9A. Controls and Procedures.
Not
applicable
Item
9A(T). Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal accounting officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as of July 31, 2009 (the “Evaluation Date”).
Based on this evaluation, our principal executive officer and principal
financial officer concluded as of the Evaluation Date that our disclosure
controls and procedures were effective such that the material information
required to be included in our Securities and Exchange Commission (SEC) reports
is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms relating to our company and was made known to
them by others within those entities, particularly during the period when this
report was being prepared.
There
were no changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the Evaluation
Date.
Management’s
Report on Internal Control over Financial Reporting
We are
responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the
Exchange Act). Under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Controls — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission, and the related guidance provided in Internal Control Over Financial
Reporting — Guidance for Smaller Public Companies also issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
43
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Based on
our evaluation under the framework in Internal Controls — Integrated
Framework, our management concluded that our internal control over
financial reporting was effective as of the Evaluation Date.
This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Our internal control over financial reporting was not subject to
attestation by our independent registered public accounting firm pursuant to
temporary rules of the SEC that permit us to provide only management’s report in
this annual report.
Item
9B. Other Information.
No
information is required to be disclosed in a report on Form 8-K during the
fourth quarter of the fiscal year covered by this Form 10-K which has not been
reported.
Part III.
Item
10. Directors, Executive Officers, and Corporate Governance.
44
Directors,
Executive Officers and Significant Employees
The
following are our directors and executive officers and significant employees.
Each director holds office until the next annual meeting of shareholders
and until the director’s successor is elected and qualified or until the
director’s resignation or removal. Each executive officer holds office for
the term for which such officer is elected or appointed and until a successor is
elected or appointed and qualified or until such officer’s resignation or
removal.
NAME
|
AGE
|
POSITIONS
|
David
Fann
|
54
|
CEO
|
Gregory
Bakeman
|
54
|
President
& CFO
|
Michael
Dodak
|
62
|
COO
|
Dean
Leischow
|
43
|
EVP
Sales and Marketing
|
Chris
Wirth
|
37
|
Chief
Marketing Officer
|
Pierre
Besuchet
|
70
|
Director
|
Everett
Airington
|
70
|
Director
|
Harold
Gear
|
55
|
Director
|
J.
Peter Wilking
|
45
|
Director
of Training and Technical Development, Solar Energy,
Inc.
|
David Fann, CEO &
Director, Mr. Fann is a founder of the Company and earlier served as the
Chief Executive Officer, VP of Corporate Communications and Secretary.
Since January 2006, Mr. Fann has served as the President, Secretary and one of
the founders and a member of the board of directors of FNDS3000 Corp. (f/k/a
Fundstech Corp, a public company. Mr. Fann also served as a director on the
board of Envortus, Inc. until July 2007. Mr. Fann also served as
President and Director of the Global Axcess Corp, a publicly traded company
since January of 2002 until September of 2006. While at Global Axcess Corp Mr.
Fann was responsible for equity and debt financings totaling over $17 million
and was responsible for investor relations. Prior to joining Global Axcess Corp
Mr. Fann was the Chief Executive Officer and Chairman of the Board of
TeraGlobal, Inc., a publicly traded company, from September 1998 through
September 2000. He was president of TechnoVision Communications, Inc., a
subsidiary of TeraGlobal, from November of 1995 to September 2000. He co-founded
Totally Automated Systems Communications, a Unix-based communications company,
and acted as Vice President of that company.
Gregory Bakeman, President & CFO,
Prior to joining the Company from October 2006 through present, Mr.
Bakeman served as a renewable energy & management consultant where he
provided financial and management services to various
enterprises. From 2000 through 2006, Mr. Bakeman initially served as
the Chief Financial Officer and director and then as the CEO, President, CFO and
director for McKenzie Bay International, Ltd., an alternative energy
technologies and natural resources company. Beginning in 1981, Mr.
Bakeman held officer positions in commercial and corporate finance institutions,
including; Bank of America (Fleet Capital Corporation), BDO Seidman and CIT
Business Credit. Mr. Bakeman received a BA in business administration
from Michigan State University in 1981 and a MBA from Seidman College of
Business - Grand Valley State University in 1986.
45
Michael Dodak, COO & Director.
Mr. Dodak is a founder of the Company and previously served as the
Treasurer, VP of Corporate Development and a Consultant to the
Company. He was CEO and Chairman of the Board of Directors for
FNDS3000 Corp. (f/k/a Fundstech Corp), a public company focused on financial
transaction processing in the prepaid card sector. Mr. Dodak served
as a director on the board of Envortus, Inc. until July
2007. Mr. Dodak also served as CEO and Chairman of the Board of
Global Axcess Corp, a publicly traded company from October 2001 until
September 2006 where he was responsible for the day-to-day operations.
Global Axcess Corp was an independent operator and owner of automated teller
machines through out the U.S. Prior to joining Global Axcess, Mr. Dodak was
Chief Executive Officer of Nationwide Money Services, Inc., an independent ATM
network operator and services provider that was sold by First Data Corporation
to Global Axcess Corp in July 2001. Mr. Dodak joined Nationwide Money Services,
Inc. as a controller in early 1996. He assumed the various duties of a
controller including the production of financial statements, budgets, and the
development of the Money Services, Inc. database. In July 1997 he was promoted
to CEO. From 1980 to 1985, Mr. Dodak was Vice President of Finance
for Airtricity Corp, a company that developed wind parks throughout the world.
He has a Bachelor of Arts and MBA degrees from the University of California Los
Angeles
Dean Leischow, Executive Vice
President – Sales and Marketing, Mr. Leischow most recently was the
President of Leischow Group Inc. which provided Energy Consulting Solutions
targeted to several markets. The most prominent was multi-location restaurant
and retail but also the private college and university markets. The company
advised its clients on how to best procure natural gas and electricity as well
as minimize the demand within their facilities for these commodities. Over an 8
year period the company designed supply and demand management solutions for
clients and oversaw the implementation of these solutions to over 14,000
facilities throughout the US and Canada. The Leischow Group grew to annual Sales
of $16 Million and a managed utility supply base in excess of $150 Million. The
executed programs resulted in a reduction in an estimated $300 Million in annual
energy consumption. Prior to starting the Leischow Group he served as the
Director of Energy Performance Contracting for Siemens USA. He also held several
executive rolls at Honeywell Inc. from 1986 to 1995.
Chris Wirth, Chief Marketing
Officer Mr. Wirth has over 15 years of diverse experience in sales,
marketing and digital media for various fast growing large industrial and
consumer businesses. Prior to joining Solar Energy Initiatives, he worked for
BAE Systems teaming with leadership on strategic growth and optimization of
international, government and domestic dealers. Prior to BAE Systems, Mr. Wirth
headed Channel Marketing for Interline Brands (NYSE:IBI - News), a leading
distributor and direct marketer of MRO and building supplies to residential
contractors, educational institutions, healthcare and government facilities. Mr.
Wirth held several executive positions in business development for PCG, Inc.
(since acquired by ESCO Corporation), a Tier 1 supplier to Applied Materials
(NasdaqGS:AMAT), as well as marketing consulting at VML, a leading digital
agency owned by WPP (NasdaqGS:WPPGY). Mr. Wirth has a BS in Marketing
from San Jose State University and a MBA from the University of North
Florida.
46
Pete Wilking, Director of Training
and Technical Director, Solar Energy, Inc., was the General Manager of
Solar Energy, Inc. prior to its acquisition by the Company, since
2007. From 2002, until joining Solar Energy, Inc., Mr. Wilking was a
financial analyst with the Nassau County - Circuit Court where he performed
analyses and completed a variety of operational labor and cost saving
projects. He has additional experience as a business analyst and
quality assurance manager. Mr. Wilking is a Gulf War veteran and
served with the Navy, as an officer, for 12-years. He has a MBA from
the University of North Florida and BS in Environmental Health from West Chester
University.
None of
the following events occurred during the past five years that is material to an
evaluation of the ability or integrity of any director, person nominated to
become a director, executive officer, promoter or control person:
|
Any
bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that
time;
|
|
Any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor
offenses);
|
|
Being
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities;
or
|
|
Being
found by a court of competent jurisdiction (in a civil action), the SEC or
the Commodity Futures Trading Commission to have violated a federal or
state securities or commodities law, and the judgment has not been
reversed, suspended, or vacated.
|
Audit
Committee Expert
The
Company does not have an Audit Committee. Because the Company does
not have an Audit Committee it does not currently have a financial expert
serving on an Audit Committee.
Item
11. Executive Compensation
There were four executives who received annual
and/or long-term compensation for more than $100,000 per year at the end of the
last completed fiscal year.
47
The
following table sets forth information with respect to compensation earned by
our Chief Executive Officer, Chief Financial Officer and our other two most
highly compensated executive officers (our “named executive officers”) for the
fiscal year ended July 31, 2009.
Summary
Compensation Table
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus($) |
(5) Stock |
(6)
Stock
Options
($)
|
Non-equity
Incentive
Plan
Compensation
($)
|
Non-Qualified Deferred |
All
Other Compensation |
Total
($)
|
|||||||
2008 | NA | NA | NA | NA | NA | NA | NA | |||||||||
Bradley
C. Holt
|
2009
|
182,167
|
(1)
|
83,333
|
259,177
|
- |
52,000
|
576,677
|
||||||||
Director
|
||||||||||||||||
Michael
J. Dodak
|
2009
|
- |
(2)
|
89,040
|
213,350
|
- |
65,000
|
367,390
|
||||||||
Director
|
||||||||||||||||
David
W. Fann
|
2009
|
46,667
|
(3)
|
10,000
|
232,071
|
- |
51,000
|
339,738
|
||||||||
CEO
|
||||||||||||||||
Gregory
N Bakeman
|
||||||||||||||||
President
& CFO
|
2009
|
126,750
|
(4)
|
36,700
|
- |
-
|
163,450
|
(1)
Mr.
Holt’s starting salary was $120,000 annually. This was increased to $220,000
annually effective May 1, 2008. Mr. Holt resigned in Dec 2008 and
received a monthly consulting fee of $10,000 in cash and the value of $8,333 per
month in shares of common stock thru July 2009. Total shares
issued are 215,488.
(2)
Mr. Dodak
provided consulting services for which $10,000 per month until August 2009 when
he rejoined the Company as an employee.. Compensation for consulting
services and salary, and
loan fees were paid in common stock of the Company at various times
during the year. Total shares issued are 430,291.
(4) Mr.
Bakeman’s starting salary was $ 140,000 annually. This was increased
to $220,000 annually effective July 2009.
(5)
Stock
Awards were Company stock issued to the recipients in lieu of cash compensation
for salary or consulting fees and valued at the lower of the bid price of the
stock on the day of the award, or at the private placement issuance price of an
open private placement at that time.
48
GRANTS
OF PLAN-BASED AWARDS
Estimated
Future Payouts Under Non-Equity Incentive Plan Awards
|
Estimated
Future Payouts Under Equity Incentive Plan Awards |
||||||||||||||||||||||||||||||||||||||||
Name |
Grant
Date
|
Threshold
($)
|
Target ($) |
Maximum
($)
|
Threshold ($) |
Target ($) |
Maximum ($) |
All
Other Stock Awards: Number of Shares of Stocks or
Units (#) |
All
Other Option Awards: Number of Securities Underlying
Options (#) |
Exercise
or Base Price of Option Awards ($/Sh) (1) |
Grant
Date Fair Value of Stock and Option Awards
|
||||||||||||||||||||||||||||||
(a) |
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
(k)
|
(2)
|
||||||||||||||||||||||||||||||
Bradley
Holt
|
2/2/09
|
500,000 | 0.32 | $ | 111,214 | ||||||||||||||||||||||||||||||||||||
8/8/08
|
800,000 | 0.50 | $ | 259,177 | |||||||||||||||||||||||||||||||||||||
David
Fann
|
2/2/09
|
1,000,000 | 0.32 | $ | 222,428 | ||||||||||||||||||||||||||||||||||||
8/8/08
|
600,000 | 0.50 | $ | 390,475 | |||||||||||||||||||||||||||||||||||||
Dean
Leischow
|
4/15/09
|
1,000,000 | 0.30 | $ | 253,351 | ||||||||||||||||||||||||||||||||||||
Everett
Airington
|
4/6/09
|
500,000 | 0.37 | $ | 82,500 | ||||||||||||||||||||||||||||||||||||
Gregory Bakeman
|
2/2/09
|
1,500,000 | 0.32 | $ | 333,641 | ||||||||||||||||||||||||||||||||||||
Harold
Gear
|
4/6/09
|
500,000 | 0.37 | $ | 106,342 | ||||||||||||||||||||||||||||||||||||
Michael
Dodak
|
8/8/08
|
600,000 | 0.50 | $ | 390,475 | ||||||||||||||||||||||||||||||||||||
2/9/09
|
500,000 | 0.32 | $ | 111,214 | |||||||||||||||||||||||||||||||||||||
Pierre
Besechut
|
2/2/09
|
500,000 | 0.32 | $ | 111,214 | ||||||||||||||||||||||||||||||||||||
(1)
|
The
Exercise or Base Price of the Option Award was determined based on the
lower of the bid price, or current private placement price of any offering
open, at the date of the grant.
|
(2)
|
The
Grant Date Fair Value is generally the amount that the Company would
expense in its financial statements over the award's service period, but
does not include a reduction for
forfeitures.
|
49
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
|||||||||||||||||||||||||||||||||
OPTION
AWARDS
|
STOCK
AWARDS
|
||||||||||||||||||||||||||||||||
Number
of Securities Underlying Unexercised Options
(#)
|
Number
of Securities Underlying Unexercised Options
(#)
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
|
Option
Exercise Price
|
Option Expiration |
Number
of Shares or Units of Stock That Have Not Vested
|
Market
Value of Shares or Units of Stock That Have Not Vested
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
|
|||||||||||||||||||||||||
Name
|
Exercisable
|
Unexercisable
|
(#) |
($)
|
Date
|
(#) |
($)
|
(#) | (#) | ||||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
||||||||||||||||||||||||
Holt
|
800,000 | N/A | $ | 0.50 |
August-2011
|
||||||||||||||||||||||||||||
Dodak
|
600,000 | N/A | $ | 0.50 |
August-2011
|
||||||||||||||||||||||||||||
Fann
|
600,000 | N/A | $ | 0.50 |
August-2011
|
||||||||||||||||||||||||||||
Besechut
|
N/A | 335,000 | $ | 0.32 |
February-2012
|
||||||||||||||||||||||||||||
Fann
|
55,000 | N/A | 666,667 | $ | 0.32 |
February-2012
|
|||||||||||||||||||||||||||
Bakeman
|
165,000 | N/A | 1,000,000 | $ | 0.32 |
February-2012
|
|||||||||||||||||||||||||||
Dodak
|
82,500 | N/A | 335,000 | $ | 0.32 |
February-2012
|
|||||||||||||||||||||||||||
Airington
|
82,500 | N/A | 335,000 | $ | 0.37 |
April-2012
|
|||||||||||||||||||||||||||
Gear
|
N/A | 335,000 | $ | 0.37 |
April-2012
|
||||||||||||||||||||||||||||
Leischow
|
N/A | 500,000 | $ | 0.30 |
April-2012
|
||||||||||||||||||||||||||||
Southworth
|
500,000 | N/A | 0 | $ | 0.30 |
April-2011
|
Option
exercises and stock vested table
OPTION
EXERCISES AND STOCK VESTED
|
||||||||||
OPTION
AWARDS
|
STOCK
AWARDS
|
|||||||||
Number
of
|
Value
|
Number
of
|
Value
|
|||||||
Shares
|
Realized
|
Shares
|
Realized
|
|||||||
Aquired
|
on
|
Aquired
|
on
|
|||||||
on
Exercise
|
Exercise
|
on
|
Vesting
|
|||||||
Name
|
(#) |
($)
|
Vesting
(#)
|
($)
|
||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
||||||
Dodak
|
600,000 |
390,475
|
||||||||
Fann
|
600,000 |
390,475
|
DIRECTOR
COMPENSATION
The
following table summarizes the director fees paid for the year ended July 31,
2009
50
Director
Compensation
Name
|
|
Non-equity
|
Non-Qualified
|
|
Total
($)
|
|||||||||||||||||
Fees
earned
|
|
|
Incentive
Plan
|
Deferred
|
||||||||||||||||||
or
paid in
|
Stock
|
Option
|
Compensation
|
Compensation
|
All
Other
|
|||||||||||||||||
cash
($)
|
Awards
($)
|
Awards
($)
|
($)
|
Earnings
($)
|
Compensation
($)
|
|||||||||||||||||
Holt
|
$ | 95,000 | 67,500 | 259,177 | 182,167 | $ | 421,677 | |||||||||||||||
Fann
|
$ | 51,385 | 10,000 | 37,071 | 46,667 | $ | 98,456 | |||||||||||||||
Dodak
|
$ | 97,000 | 57,000 | 18,350 | $ | 172,350 | ||||||||||||||||
Besechut
|
26,000 | $ | 26,000 | |||||||||||||||||||
Airington
|
45,000 | 17,546 | $ | 62,546 | ||||||||||||||||||
Gear
|
45,000 | $ | 45,000 | |||||||||||||||||||
Equity
Compensation Plan Information
There is
currently no stock option executive compensation plan in place.
Employment
and Consulting Agreements
The
Company entered into a five year employment agreement with Brad Holt as CEO. The
terms of the contract included an initial salary of $120,000 until a specific
performance measurement was met, at which time the salary is to be increased to
$220,000. As of March 1, 2008 the salary increased to $220,000,
annually, predicated upon the Company receiving one million dollars
from the sale of common stock of the Company for the time period beginning
December 1, 2007 of which the Company raised $700,000 as of January 31, 2008 and
an additional $300,000 through March 31, 2008.
Mr. Holt
resigned as CEO in December 2008. The Company entered into a
consulting agreement with Mr. Holt at that time which included cash compensation
of $10,000 and $8,333 in stock based compensation, monthly thru July
2009 In addition, Mr. Holt received performance based options which
would vest upon his achieving certain milestones. The Company and Mr.
Holt severed its relationship in August 2009, and all options were
cancelled
The
Company has entered into a four year employment agreement with David W. Fann as
CEO. The terms of the contract include an initial salary of $150,000.
The base salary will increase to $220,000 when the company receives a minimum of
$1,000,000. This increase took place in July 2009. There is an 18
month severance if terminated early.
The
Company has entered into a four year employment agreement with Gregory N.
Bakeman as President and CFO. The terms of the contract include an initial
salary $160,000. The base salary will increase to $220,000 when the company
receives a minimum of $1,000,000. This increase took place in July
2009. There is an 18 month severance if terminated early.
In April
2009 The Company hired Dean Leischow as Executive Vice President of Sales and
Marketing. Mr Leischow will be paid a salary of $120,000 per year,
and received 100,000 shares of S-8 stock in lieu of cash for the first 90
days. The stock was issued in July 2009 with a value of
$120,000. The entire amount was expensed as salaries for the period
ending July 31, 2009.
51
Director and
Officer Compensation
In
June 2006 we issued 3,000 initial founders shares of restricted common
stock at $0.01 pursuant to subscription agreements, to each of our three
founding shareholders who at the time constituted the entire board of
directors. Those founding directors are Michael Dodak, David Fann and
Paul Cox. None of these directors share grants are being registered
in this registration statement.
On August
2, 2006 the board authorized payment for $1,800 of consulting services to each
of the three founders at the adjusted par value of $0.001 and authorized
1,800,000 shares to be issued in the future for a total of $5,400 in payment of
the services. (Par value of the stock was changed during July 2006
from $0.01 per share to $0.001 per share.). None of these directors’ or officers
share grants are being registered in this registration statement.
During
September, 2007 there were issuances of 3,050,000 shares of restricted stock,
based on vesting schedules, for management of the Company in current and future
compensation awards. None of the 3,050,000 shares have vested through
January 31, 2008. Current vesting is over 24 months on an
equal monthly basis starting February 2008. The 1,000,000 shares going
to Dell Jones and Isabelle Christensen were cancelled.
During
March 2008, the Company granted 1,000,000 shares of common stock to David
Surette. These shares were canceled upon Mr. Surette’s separation
from the Company.
We have
no formal director compensation or reimbursement policy, but rather the
Compensation Committee or the board makes director compensation and
reimbursement determinations on an ad hoc basis. Directors may be reimbursed for
their expenses incurred for attending each board of directors meeting and may be
paid a fixed sum for attendance at each meeting of the directors or a stated
salary as director. No payment precludes any director from serving us in
any other capacity and being compensated for the service. Members of special or
standing committees may be allowed like reimbursement and compensation for
attending committee meetings. During our fiscal years ended July 31, 2009 and
2008, none of our directors were paid any fees to attend director
meetings.
52
The
Company has employment agreements with its CEO, President/CFO, and consulting
agreements with former Company officers.
The
Company entered into a five year employment agreement with Brad Holt as CEO. The
terms of the contract included an initial salary of $120,000 until specific
performance measures are met, at which time the salary is to be increased to
$220,000. On March 1, 2008 the salary was increased to the $220,000,
annually. Other performance bonuses are available at the discretion of the
board of directors. There is an 18 month severance if terminated
early.
In
December, 2008 Brad Holt resigned as CEO and assumed the Chairman of the Board
position. The employment agreement was cancelled, and the Company
entered into a consulting agreement with Mr. Holt for a period of four
years. The final terms were resolved in August
2009.
The
Company entered into a five year employment agreement with David Surette as
President, and CFO. The terms of the contract include an initial salary of
$160,000 effective January 15, 2008 until April 15, 2008, at which time the
salary is to be increased to $220,000. Other performance bonuses are
available at the discretion of the board of directors. There is an 18 month
severance if terminated early. On September 3, 2008, the Company
entered into a severance agreement with David Surette. Mr. Surette
will receive $36,000 in cash; $18,000 on September 20, 2008 and $3,000 per
month, for six (6) months, beginning October 1, 2008. In addition,
Mr. Surette returned 25,000 shares of common stock he was issued in the form of
consideration during his tenure as Chief Financial Officer.
The
Company entered into a five year employment agreement with Michael Dodak as VP
of Corporate Development. The terms of the contract included an initial salary
of $120,000 until specific performance measures are met, at which time the
salary is to be increased to $150,000. Per the agreement, Mr. Dodak
elected to convert his contract to a consulting agreement whereby he was paid
$10,000, monthly. The consulting agreement runs thru December, 2012.
There is an 18 month severance if terminated early. In August 2009
the agreement was amended as follows:
The
Company has requested that the Executive become the “Director of Solar Park
Development” and COO.
1.
Executive agrees to become the Director of Solar Park Development and COO for a
period of time not to exceed one year.
His
compensation will increase to $15,416.66 per month. Upon termination
by Executive of Director of Solar Park Development his compensation will revert
to the $10,000. Executive will receive certain bonuses for achieving certain
milestones in developing the Solar Park. Executive will also receive
new options in line with the other Executives of the Company.
53
The
Company has entered into a four year employment agreement with David W. Fann as
CEO. The terms of the contract include an initial salary of $150,000.
The base salary will increase to $220,000 when the company receives a minimum of
$1,000,000. This increase took place in July 2009. There is an 18
month severance if terminated early.
The
Company has entered into a four year employment agreement with Gregory N Bakeman
as President and CFO. The terms of the contract include an initial salary
$14,000. The base salary will increase to $220,000 when the company receives a
minimum of $1,000,000. This increase took place in July 2009. There
is an 18 month severance if terminated early.
In April
2009 The Company hired Dean Leischow as Executive Vice President of Sales and
Marketing. Mr Leischow will be paid a salary of $120,000 per year,
and received 100,000 shares of S-8 stock in lieu of cash for the first 90
days. The stock was issued in July 2009 with a value of
$120,000. The entire amount was expensed as salaries for the period
ending July 31, 2009.
The
following tables set forth certain information, as of October 23,
2009 , with respect to the beneficial ownership of the outstanding common stock
by (i) any holder of more than five (5%) percent; (ii) each of our executive
officers and directors; and (iii) our directors and executive officers as a
group. Except as otherwise indicated, each of the stockholders listed below has
sole voting and investment power over the shares beneficially
owned.
54
Table
1 – Current Stock Outstanding and Ownership
Title
of Class
|
Name ofBeneficial
Owner
|
Number
of Shares Beneficially Owned (1)
|
Percentage
Ownership
|
|
Common
Stock
|
David
Fann
|
(1) |
1,856,188
|
7.07%
|
Common
Stock
|
Michael
Dodak
|
(2) |
1,743,418
|
6.63%
|
Common
Stock
|
Gregory
Bakeman
|
(3) |
363,445
|
1.38%
|
Common
Stock
|
Sidney
Cole
|
(4) |
6,599,999
|
22.92%
|
Common Stock | Evertt Airington | (5) | 1,267,346 | 4.79% |
Common Stock | Harold Gear | (6) | 602,035 | 2.26% |
Common Stock | Pierre Besechut | (7) | 769,445 | 2.89% |
Common
Stock
|
All Executive Officers and Directors as a Group (6
persons)
|
6,601,877
|
21.91%
|
(1)
|
Applicable
percentage ownership is based on 26,198,289 shares of common stock
outstanding as of October 23, 2009, together with 55,000 securities
exercisable or convertible into shares of common stock within 60 days of
October 23, 2009. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to
securities.
|
(2)
|
Applicable
percentage ownership is based on 26,198,289 shares of common stock
outstanding as of October 23, 2009, together with 82,500 securities
exercisable or convertible into shares of common stock within 60 days of
October 23, 2009. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to
securities.
|
(3)
|
Applicable
percentage ownership is based on 26,198,289 shares of common stock
outstanding as of October 23, 2009, together with 165,000 securities
exercisable or convertible into shares of common stock within 60 days of
October 23, 2009. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to
securities.
|
(4)
|
Applicable
percentage ownership is based on 26,198,289 shares of common stock
outstanding as of October 23, 2009, of which 3,485,714 is in the name of
Remi Holdings, together with 2,600,000 securities exercisable
or convertible into shares of common stock within 60 days of October 23,
2009. Remi Holdings owns Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to
securities.
|
(5)
|
Applicable
percentage ownership is based on 26,198,289 shares of common stock
outstanding as of October 23, 2009, together with 236,364 securities
exercisable or convertible into shares of common stock within 60 days of
October 23, 2009. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to
securities.
|
(6)
|
Applicable
percentage ownership is based on 26,198,289 shares of common stock
outstanding as of October 23, 2009, together with 388,035 securities
exercisable or convertible into shares of common stock within 60 days of
October 23, 2009. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to
securities.
|
(7)
|
Applicable
percentage ownership is based on 26,198,289 shares of common stock
outstanding as of October 23, 2009, together with 407,692 securities
exercisable or convertible into shares of common stock within 60 days of
October 23, 2009. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to
securities.
|
Recent
Sales and Distribution of Unregistered Securities.
The
Company issued 175,000 shares of common stock to a group engaged to provide
business consulting in December 2008.
In
January 2009 the Company entered into a consulting arrangement with a company
for business consulting, and issued 100,000 shares of common stock.
In
February 2009, the Company issued 20,000 shares of common stock as commission
for securing debenture funds.
In March
2009 the Company issued 5,000 shares of common stock to seven employees of the
subsidiary company Solar Energy, Inc. (35,000 shares in total).
55
In March
2009 the Company issued 1,000 shares of common stock to thirteen Dealers (13,000
shares in total).
In March
2009 Harold Gear and Everett Airington were each issued 100,000 share of common
stock in consideration for their acceptance of Board of Director
positions.
In April
2009 the Company issued 1,000 shares of common stock to nine Dealers, as part of
a dealer incentive program (9,000 shares in total).
On April
2, 2009 the Company issued 50,000 shares of common stock to a group engaged to
provide business consulting services.
In May
2009 the Company issued 1,000 shares of stock to twelve Dealers (12,000 shares
in total).
In June
2009 25,000 shares were issued as employee incentives.
In June
2009 the Company issued 300,000 shares of common stock to a group engaged to
provide international business consulting and other services for the term of
eighteen months.
In June
2009 the Company issued 75,000 shares of common stock to a group engaged to
provide business consulting and other services for the term of three
months.
In June
2009 the Company issued 300,000 shares of common stock to a group engaged to
provide merger and acquisition consulting and other services for the term of
eighteen months.
In July
2009 the Company issued 1,000 shares of stock to four Dealers (4,000 shares in
total).
In July
2009 5,000 shares were issued as employee incentives.
In July
2009 4,300 shares were issued for commission expense.
In July
2009 the Company issued 350,000 shares of common stock to a group engaged to
provide marketing consulting services for the term of twelve
months.
In July
2009 the company issued 32,000 shares as settlement for outstanding accounts
payable.
In July
2009 the Company issued 1,000 shares of stock to five Dealers (5,000 shares in
total)..
In July
2009, the Company sold 4,508,526 units at $0.30 per unit in a private placement
to accredited investors. Each Unit consists of one (1) share of
common stock and one (1) warrant to purchase one (1) share of common stock for
$0.60 per share.
56
All of
the above offerings and sales were deemed to be exempt under Rule 506 of
Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of persons, all of whom were
accredited investors, business associates of the Company or executive officers
of the Company, and transfer was restricted by the Company in accordance with
the requirements of the Securities Act of 1933. In addition to representations
by the above-referenced persons, we have made independent determinations that
all of the above-referenced persons were accredited or sophisticated investors,
and that they were capable of analyzing the merits and risks of their
investment, and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.
Except as
expressly set forth above, the individuals and entities to which we issued
securities as indicated in this section of the registration statement are
unaffiliated with us.
Item
13 Certain Relationships and Related Transactions, and Director
Independence
We
believe that we have executed all of the transactions set forth below on terms
no less favorable to us than terms we could have obtained from unaffiliated
third parties. It is our intention to ensure that all future transactions
between us and our officers, directors and principal stockholders and their
affiliates, are approved by a majority of the board of directors, including a
majority of the independent and disinterested members of the board of directors,
and are on terms no less favorable to us than those that we could obtain from
unaffiliated third parties.
Brad
Holt, CEO, was hired September 2007 and received $120,000 annual
salary at that time. He was also issued 1,800,000 shares of
stock as of September 2007. Mr. Holt’s compensation level was
raised as of May 1, 2008 to $220,000 in annual salary.
|
David
Surette, CFO and Secretary, was employed by the Company from July 2007
through January 14, 2008 on a consulting basis at a rate of $100/hour for
approximately 10 hours per week and was issued 250,000 shares of the
Company’s common stock as of October 2007. Effective January
15, 2008, he became a full time employee and received an annual salary of
$160,000. On April 15, 2008 he also became President of the
Company and his salary increased to $220,000,
annually. 1,000,000 shares of stock were granted to him in
March 2008. On July 1, 2008 Mr. Surette was terminated by the
Company and his 1,000,000 shares of common stock were
canceled. In consideration of an employment contract, entered
into on March 6, 2008 with Mr. Surette, he received a settlement of;
$36,000 in cash, $18,000 of which was paid on September 20, 2008 and the
balance will be paid in $3,000 monthly installments over the following 6
months, plus, he retained 225,000 shares of 250,000 of common stock he
received in October 2007.
|
During
the fiscal period ending July 31, 2008, we paid $10,000 in consulting fees to
David Fann, a Director of the Company.
During
the fiscal period ending July 31, 2008, we paid $10,000 in consulting fees to
Michael Dodak, a Director of the Company. We paid $5,000 of this amount to
Photographic Exploration, a company 50% owned by Mr. Dodak.
During
the fiscal period ending July 31, 2008, we paid $15,000 in consulting fees to
David Surette, the former CFO.
In July
2006, we entered into a convertible debenture with a waste to energy development
company, Envortus Inc. As such time, we intended to develop a business in the
waste to energy market and this was our initial foray in to the
market. The officers and board members of the Company had ownership,
officer positions and board positions in Envortus Inc. Under the terms of the
convertible debenture, the Company could invest $250,000 in Envortus Inc over a
period of time. The Company forwarded a total of $134,500 to Envortus Inc before
deciding to continue its focus specifically in the solar area of the renewable
energy market instead of waste to energy. The Company utilized funds raised from
the sale of common stock and convertible debentures in order to fund the loan to
Envortus Inc.
In March
2007, the Company entered into an agreement to sell the convertible debenture
for $152,500, with discounts if paid early, to 0784655 B.C. LTD (“B.C.”), a
company controlled by Paul Cox, a shareholder and a former officer and board
member of the Company. Mr. Cox remains a shareholder, officer and
board member of Envortus Inc. In July 2007, the sale of the convertible
debenture was completed with a payment of $55,000 to the Company and the
receipt of a promissory note in the amount of $97,500 (the “Note”), from B.C.
for the balance. The principal amount of the Note was immediately
discounted to $90,800. In addition, if the Note was paid within the
first 270 days of issuance, additional discounts could be
available. Further, in the event that we do not commence trading on
the OTC BB by January 2009, Paul Cox may return shares of common stock of our
Company for cancellation in lieu of payment of the Note. The price
per share shall be the greater of $0.35 or the last price to raise funds from
third parties.
57
To
account for the Note the Company determined the fair value of the Note on a
discounted basis to be equal to $68,100, which represented the discounted
balance to be paid by B.C. assuming early payments made within 90 days from
closing as provided in the Note. Based on the fair value of the note
of $68,100, a loss totaling $11,405 was recorded for the year ended July 31,
2008 as reflected in the table below:
Consideration
for sale of debenture:
|
||||
Cash
|
$
|
55,000
|
||
Note
receivable
|
97,500
|
|||
Total
consideration
|
152,500
|
|||
Immediate
discount
|
(6,700
|
)
|
||
Bank
fee
|
(5
|
)
|
||
Expected
early payment discount
|
(22,700
|
)
|
||
Total
net consideration
|
123,095
|
|||
Investment
in convertible debenture
|
134,500
|
|||
Loss
on sale of investment
|
$
|
(11,405
|
)
|
The
Company had originally invested $134,500 in a convertible debenture with
Envortus. The Company then took back a Note for $97,500 and cash paid
back of $55,000. The Company reviewed the fair value of the $97,500
Note, which had an immediate discount of $6,700 and an early expected payment
discount of $22,700. The Company decided to take a valuation
allowance on the $22,700 and the $6,700 during July 2007, leaving a balance on
the Note of $68,100. Comparing the consideration received of $55,000
and the remaining value of the Note at $68,100 or $123,095, net of a $5 fee,
this resulted in a loss on sale of the original investment in convertible
debenture of $11,405. The Company has allowed for the remaining
balance of the Note and recorded bad debt related to note receivable, related
party, in the amount of $68,100, due to concerns of collectability and
non-payment of the scheduled payments. Per the terms of the Note,
B.C. was required to pay principal in the amount of $10,000 in January 2008 and
additional payments of $17,240 in July 2008, $31,780 in January 2009 and $31,780
in July 2009, together with interest, according to the payment schedule as
defined by the Note when the early payments are not received. As of
the date hereof, B.C. has not made the required principal and interest
payment. The Company is pursuing legal action against the Note’s
obligor for non payment.
No
related parties purchased securities during the private placement from August 1,
2007 to July 31, 2009:
During
the fiscal year ended July 31, 2008, the following equity distributions were
made as part of employment compensation:
Brad
Holt, CEO
|
1,800,000
|
|||
Isabelle
Christensen
|
500,000
(1)
|
|||
Dell
Jones
|
500,000
(1)
|
|||
David
Surette
|
250,000
(2)
|
58
(1) The
1,000,000 shares issued to Dell Jones and Isabelle Christensen,
combined, have been cancelled.
(2) 25,000
shares of Mr. Surette’s compensation distribution were returned and canceled as
part of his separation agreement.
On March
6, 2008, we agreed to extend employment agreements to Messrs., Holt, Fann and
Dodak pursuant to which they served as Executive officers and employees and
receive annual base compensation of $200,000, $150,000 and $150,000,
respectively. If Executive's employment with the Company is terminated by the
Company without Cause at any time prior to January 1, 2013, Executive shall
receive from the Company severance pay in an amount equal to the greater of his
then-current Base Compensation in effect at the time of such termination through
either December 31, 2012 or eighteen (18) months from the date of notice,
whichever is greater, in a lump sum payable no later than the termination date
and (ii) all unpaid benefits such as accrued vacation, and (iii) all outstanding
expenses, (iv) any declared but unpaid Annual Bonus, and any and all unvested
options or stock shall become fully vested. If Executive's employment
with the Company is terminated by the Company by virtue of the expiration of
this Agreement on December 31, 2012, Executive shall be entitled to continue to
receive from the Company severance pay in an amount equal to the greater of his
then-current Base Compensation in effect at the time of such termination through
December 31, 2013 in accordance with the Company's general payroll practices;
and (ii) any declared but unpaid Annual Bonus. In the event of a Corporate
Transaction, the amount of severance pay will be equal to his then current Base
Compensation for twenty four (24) months plus any annual bonus due plus all PTO
time in a lump sum payable no later than the closing date of the Corporate
Transaction. Additionally, the Company will continue to pay the premiums for
Executive’s health benefits and life insurance for twenty four
months. During any period in which Executive is receiving severance
compensation, the Company shall use reasonable efforts to obtain reasonably and
to pay for comparable medical, life and disability insurance and other benefits
on the same terms and conditions and to the same extent as theretofore provided
by the Company to Executive prior to the effective date of the termination of
his employment.
If
Executive is terminated without Cause (whether as an employee or as a
consultant) within a twelve (12) month period following the consummation of a
Corporate Transaction (i) Executive's right to receive any earned but unpaid
Annual Bonus shall immediately vest, but not less than a pro rata amount of the
immediately preceding year's Annual Bonus if no Annual Bonus shall have been
earned for the then current year, (ii) the Company or its successor in interest
shall use reasonable efforts to obtain reasonably comparable medical, life and
disability insurance and other benefits on the same terms and conditions and to
the same extent as immediately theretofore provided by the Company to Executive
prior to the consummation of the Corporate Transaction for a period of two (2)
years following such termination and (iii) all severance compensation provided
for will be due and payable at time of termination.
59
The
Executive may select to become a consultant to the Company rather than be an
employee. The Executive must provide the Company with a 60 day notice after
which the Executive will become a consultant to the Company for the remaining
term of this Agreement. The Executive will report to the then C.E.O. and will
perform agreed upon services on a part-time basis (not to exceed 40 hours per
month). The compensation paid will be Ten thousand dollars ($10,000) per month
plus all expenses incurred on behalf of the Company. Any required travel in
excess of three and one half hours will be business class. Both
Messrs. Fann and Dodak elected to convert their relationship with the Company to
consultancy in July 2008.
Item
14 Principal Accounting Fees and Services.
Accounting
Fees
The
following table shows the aggregate fees billed to us for professional services
by L.L. Bradford & Company, LLC, our independent auditors, for the years
ended July 31, 2009 and 2008.
2009
|
2008
|
|||||||
Audit
Fees
|
$ | 44,500 | $ | 22,000 | ||||
Audit-Related
Fees
|
500 | 8,750 | ||||||
Tax
Fees
|
1,500 | 1,500 | ||||||
All
Other Fees
|
- | - | ||||||
Total
|
$ | 46,500 | $ | 32,250 |
Audit Fees. Audit fees
billed by L.L. Bradford were for professional services rendered for the annual
audit of our consolidated financial statements, quarterly review of our
consolidated financial statements, and other fees that are normally provided by
the independent auditor in connection with statutory and regulatory filings or
engagements.
Audit-Related Fees.
Audit-related fees billed by L.L. Bradford were for professional services
rendered for assurance and related services that were reasonably related to the
performance of the audit or review of our consolidated financial statements,
other than those previously reported under “Audit Fees.” Audit-related fees for
the years ended 2009 and 2008 related to professional services performed in
connection with the Company’s regulatory filings on Forms S-1 and S-8 during
each of those periods.
Tax Fees. This category
includes the aggregate fees billed in each of the last two fiscal years for
professional services rendered by L.L. Bradford for tax compliance, tax planning
and tax advice.
All Other Fees. L.L.
Bradford did not bill us for professional services rendered, other than amounts
reported under “Audit Fees,” “Audit-Related Fees” and “Tax Fees” above for the
years ended 2009 and 2008.
60
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) Audited
Financial Statements for fiscal year ended July 31, 2009.
(b)
Exhibits.
|
Exhibit
Number
|
Description
of Exhibit
|
|
3.1
|
Certificate
of Incorporation.(1)
|
|
3.2
|
By-Laws.
(1)
|
|
3.3
|
Certificate
of Amendment dated August 2, 2006(1)
|
|
3.4
|
Certificate
of Amendment dated February 2, 2007(1)
|
|
3.5
|
Certificate
of Amendment to the Certificate of Incorporation (6)
|
|
3.6
|
Certificate
of Amendment to the Certificate of Incorporation (8)
|
|
4.1
|
0784655
B.C. LTD Promissory Note with the Company.(2)
|
|
4.2
|
Amended
Convertible Debenture Purchase and Sale Agreement between 0784655 B.C.
LTD, Envortus and the Company. (2)
|
|
4.3
|
Agreement
for distribution of solar panels between an Asian Solar Photovoltaic
Manufacturer and the Company*(9)
|
|
4.4 | 2009 Incentive Stock Plan (10) | |
4.5 |
Form
of Warrant issued to the April and May 2009 Investors
(11)
|
|
4.6 |
Form
of Subscription Agreement entered into by the April and May 2009 Investors
(11)
|
|
10.1
|
Employment
Agreement by and between Brad Holt and the Company(4)
|
|
10.2
|
Employment
Agreement by and between David Fann and the Company(4)
|
|
10.3
|
Employment
Agreement by and between David Surette and the
Company(4)
|
|
10.4
|
Employment
Agreement by and between Michael Dodak and the
Company(4)
|
|
10.5
|
Website
Purchase Agreement by and among NP Capital Corp, SEI Acquisition, Inc.,
Solar Energy, Inc., David H. Smith Revocable rust dated June 16, 1993 and
David Smith (7)
|
|
23.1 | Consent of L.L. Bradford & Company, LLC | |
31.1
|
Certification
pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certifications
pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certifications
pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
*
Portions of this exhibit have been redacted pursuant to a request for
confidential treatment submitted to the Securities Exchange
Commission.
62
(1)
Incorporated by reference to the Form SB-2 Registration Statement filed with the
Securities Exchange Commission on December 17, 2007.
(2)
Incorporated by reference to the Form SB-2 Registration Statement filed with the
Securities Exchange Commission on February 1, 2008.
(3)
Incorporated by reference to the Form S-1 Registration Statement filed with the
Securities Exchange Commission on March 6, 2008.
(4) Incorporated
by reference to the Form S-1 Registration Statement filed with the Securities
Exchange Commission on April 1, 2008.
(5)
Incorporated by reference to the Form S-1 Registration Statement filed with the
Securities Exchange Commission on April 25, 2008.
(6)
Incorporated by reference to the Form 8K Current Report filed with the
Securities Exchange Commission on August 1, 2008.
(7)
Incorporated by reference to the Form 8K Current Report filed with the
Securities Exchange Commission on August 27, 2008.
(8)
Incorporated by reference to the Form 8K Current Report filed with the
Securities Exchange Commission on September 25, 2008.
(9)
Incorporated by reference to the Form S-1 Registration Statement filed with the
Securities Exchange Commission on May 21, 2008.
(10)
Incorporated by reference to the Form S-8 Registration Statement filed with the
Securities Exchange Commission on March 19, 2009.
(11)
Incorporated by reference to the Form 8K Current Report filed with the
Securities Exchange Commission on May 22, 2009.
63
Signatures
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date:
October ___, 2009
|
Solar
Energy Initiatives, Inc.
By: /s/ David W. Fann
David
W. Fann
Chief
Executive Officer and Director (Principal Executive
Officer)
|
Date: October
__, 2009
|
By:
/s/ Gregory N. Bakeman
Gregory
N. Bakeman
Chief
Financial Officer (Principal Accounting and Financial
Officer)
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Solar Energy Initiatives, Inc. | |||
|
By:
|
/s/ David W. Fann | |
David
W. Fann,
Chief
Executive Officer and Director
(Principal
Executive Officer)
|
|||
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant in the capacities and on the date
indicated.
Signature
|
Title
|
Date
|
/s/ David W. Fann
David
W. Fann
|
Chief Executive
Officer (Principal Executive Officer), Director
|
October
23, 2009
|
/s/ Gregory N. Bakeman
Gregory
N. Bakeman
|
Chief
Financial Officer (Principal Financial and Accounting
Officer)
|
October
23, 2009
|
/s/ Michael Dodak
Michael
Dodak
|
Director
|
October
23, 2009
|
/s Everett Airington
Everett
Airington
|
Director
|
October
23, 2009
|
/s Harold Gear
Harold
Gear
|
Director
|
October
23, 2009
|
/s Pierre Besechut
Pierre
Besechut
|
Director
|
October
23, 2009
|
64
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders
Solar
Energy Initiatives, Inc.
Ponte
Vedra Beach, Florida
We
have audited the accompanying balance sheets of Solar Energy Initiatives, Inc.
as of July 31, 2009 and 2008, and the related statements of operations,
stockholders’ equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Solar Energy Initiatives, Inc. as
of July 31, 2009 and 2008, and the results of its activities and cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 14 to the
consolidated financial statements, the Company has suffered losses from
operations since inception and need additional capital to maintain operations
and execute their business plan, all of which raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regards
to these matters are also described in Note 14. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/
L.L. Bradford & Company, LLC
October 23,
2009
Las
Vegas, Nevada
F -
1
Solar
Energy Initiatives, Inc.
CONSOLIDATED
BALANCE SHEETS
July
31, 2009
|
July
31, 2008
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 1,005,628 | $ | 366,655 | ||||
Trade
receivable
|
22,190 | - | ||||||
Other
receivables
|
168,932 | |||||||
Inventory
|
226,412 | - | ||||||
Prepaid
expenses and other current assets
|
3,289 | 3,845 | ||||||
Total
current assets
|
1,426,451 | 370,500 | ||||||
Fixed
assets, net
|
27,945 | 5,434 | ||||||
Domain
name
|
1,650,000 | - | ||||||
Deposits
|
12,748 | - | ||||||
Deposit
on domain name
|
- | 25,000 | ||||||
Total
assets
|
$ | 3,117,144 | $ | 400,934 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$ | 718,011 | $ | - | ||||
Commissions
payable
|
76,178 | - | ||||||
Due
to related parties
|
188,391 | 31,735 | ||||||
Accrued
expenses
|
132,021 | 74,976 | ||||||
Deferred
revenue
|
52,197 | - | ||||||
Note
payable
|
400,000 | - | ||||||
Total
current liabilities
|
1,566,798 | 106,711 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
equity
Common
stock, $0.001 par; 100,000,000 authorized 22,626,567 and
11,809,256 issued and
outstanding, |
22,627 | 11,809 | ||||||
Paid-in
capital
|
7,104,896 | 2,298,156 | ||||||
Deferred
compensation
|
(446,166 | ) | - | |||||
Common
stock subscription
|
(20,000 | ) | (60,000 | ) | ||||
Accumulated
deficit
|
(5,111,011 | ) | (1,955,742 | ) | ||||
Total
stockholders' equity
|
1,550,346 | 294,223 | ||||||
Total
liabilities and stockholders' equity
|
$ | 3,117,144 | $ | 400,934 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
F -
2
Solar Energy
Initiatives, Inc.
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the Year Ended July 31,
|
For
the Year Ended July 31,
|
|||||||
2009
|
2008
|
|||||||
Revenues,
net
|
$ | 3,821,610 | $ | - | ||||
Cost
of sales
|
3,023,639 | - | ||||||
Gross
profit
|
797,971 | - | ||||||
Operating
expenses
|
||||||||
Selling,
general and administrative
|
3,461,128 | 1,587,236 | ||||||
Total
operating expenses
|
3,461,128 | 1,587,236 | ||||||
Loss
from operations
|
(2,663,157 | ) | (1,587,236 | ) | ||||
Other
income (expense)
|
||||||||
Interest
and other income
|
6,479 | 10,371 | ||||||
Interest
expense
|
(498,591 | ) | - | |||||
Bad
debt related party note receivable
|
- | (68,100 | ) | |||||
Total
other income (expense)
|
(492,112 | ) | (57,729 | ) | ||||
Loss
before provision for income taxes
|
(3,155,269 | ) | (1,644,965 | ) | ||||
Provision
for income taxes
|
- | - | ||||||
Net
loss
|
$ | (3,155,269 | ) | $ | (1,644,965 | ) | ||
Net
loss per share – basic and diluted
|
$ | (0.21 | ) | $ | (0.15 | ) | ||
Weighted
average shares outstanding – basic and diluted
|
14,679,359 | 10,871,614 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
F -
3
Solar
Energy Initiatives, Inc.
STATEMENTS
OF STOCKHOLDERS’ EQUITY
Common
Stock
|
|
|
|
|
|
||||||||||||||||||||||||||
Shares
|
Amount
|
Additional Paid-inCapital
|
Deferred Comp |
Common
Stock
Payable
|
Common
Stock
Subscription
|
Accumulated
Defecit
|
Total
Stockholders
Equity
|
||||||||||||||||||||||||
Balances,
July 31, 2007
|
6,787,715 | $ | 6,788 | $ | 355,247 | $ | - | $ | 111,475 | $ | - | $ | (253,800 | ) | $ | 219,710 | |||||||||||||||
October
2007 stock issued through private placement
|
648,227 | 648 | 226,232 | - | (111,475 | ) | - | - | 115,405 | ||||||||||||||||||||||
October
2007 stock for services issued
|
7,314 | 7 | 1,993 | - | - | - | - | 2,000 | |||||||||||||||||||||||
October
2007 stock for services issued
|
2,050,000 | 2,050 | 715,450 | - | - | - | - | 717,500 | |||||||||||||||||||||||
April
2008 stock issued through private placement, net of offering costs of
$156,450
|
2,316,000 | 2,316 | 999,234 | - | - | (60,000 | ) | - | 941,550 | ||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (1,701,942 | ) | (1,701,942 | ) | |||||||||||||||||||||
Balances,
July 31, 2008
|
11,809,256 | 11,809 | 2,298,156 | - | - | (60,000 | ) | (1,955,742 | ) | 294,223 | |||||||||||||||||||||
Shares
issued for board seats
|
300,000 | 300 | 115,700 | - | - | - | - | 116,000 | |||||||||||||||||||||||
Stock
warrant for board seat
|
- | - | 5,326 | - | - | - | - | 5,326 | |||||||||||||||||||||||
Cashless
exercise of stock options
|
440,506 | 441 | (441 | ) | - | - | - | - | - | ||||||||||||||||||||||
Cancellation
of Surette issued March 2008
|
(25,000 | ) | (25 | ) | 25 | - | - | - | - | - | |||||||||||||||||||||
Shares
cancelled related to stock subscription
|
(80,000 | ) | (80 | ) | (39,920 | ) | - | - | 40,000 | - | - | ||||||||||||||||||||
Shares
issued for acquisition of SEI assets
|
1,000,000 | 1,000 | 649,000 | - | - | - | - | 650,000 | |||||||||||||||||||||||
Amortization
of deferred compensation expense
|
- | - | 463,459 | - | - | - | 463,459 | ||||||||||||||||||||||||
Options
granted for compensation
|
- | - | 757,933 | - | - | - | - | 757,933 | |||||||||||||||||||||||
Shares
issued for compensation
|
1,546,960 | 1,548 | 634,638 | (360,750 | ) | - | - | - | 275,436 | ||||||||||||||||||||||
Shares
issued for consulting
|
1,494,019 | 1,494 | 609,451 | (548,875 | ) | - | - | - | 62,070 | ||||||||||||||||||||||
Shares
issued for commission |
4,300 | 4 | 2,060 | - | - | - | - | 2,064 | |||||||||||||||||||||||
Shares
issued for employee incentives
|
65,000 | 65 | 24,335 | - | - | - | - | 24,400 | |||||||||||||||||||||||
Shares
issued for loan fees
|
220,000 | 220 | 86,280 | - | - | - | - | 86,500 | |||||||||||||||||||||||
Shares
issued for dealer incentives
|
43,000 | 43 | 15,007 | - | - | - | - | 15,050 | |||||||||||||||||||||||
Discounts
from warrants and beneficial conversion feature
|
- | - | 325,000 | - | - | - | - | 325,000 | |||||||||||||||||||||||
Shares
issued for conversion of debenture
|
1,300,000 | 1,300 | 323,700 | - | - | - | - | 325,000 | |||||||||||||||||||||||
Final
closing for Private Placement, net of offering costs of
$48,877
|
4,508,526 | 4,508 | 1,298,646 | - | - | - | 1,303,154 | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | (3,155,269 | ) | (3,155,269 | ) | |||||||||||||||||||||
Balances,
July 31, 2009
|
22,626,567 | $ | 22,627 | $ | 7,104,896 | $ | (446,166 | ) | $ | - | $ | (20,000 | ) | $ | (5,111,011 | ) | $ | 1,550,346 | |||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
F -
4
Solar
Energy Initiatives, Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Year Ended July 31, 2009
|
For
the Year Ended July 31, 200
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (3,155,269 | ) | $ | (1,701,942 | ) | ||
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
||||||||
Depreciation
and amortization
|
4,801 | 776 | ||||||
Net
loss on sale of investment and related discounts
|
- | - | ||||||
Stock
based compensation
|
1,721,738 | 719,500 | ||||||
Par
value of stock to be returned
|
- | (25 | ) | |||||
Convertible
debenture discount accreation
|
325,000 | - | ||||||
Loan
fee amortization
|
86,500 | - | ||||||
Bad
debt, related party note receivable
|
- | 68,100 | ||||||
Change
in operating assets and liabilities:
|
- | - | ||||||
Accounts
receivable
|
(22,190 | ) | - | |||||
Other
receivables
|
(168,932 | ) | ||||||
Inventory
|
(226,412 | ) | - | |||||
Prepaid
expenses and other current assets
|
556 | 1,180 | ||||||
Deposits
|
(12,748 | ) | - | |||||
Accounts
payable
|
718,011 | - | ||||||
Commissions
payable
|
76,178 | - | ||||||
Accrued
expenses
|
57,045 | 87,101 | ||||||
Deferred
revenue
|
52,197 | - | ||||||
Net
cash used by operating activities
|
(543,525 | ) | (825,310 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Purchase
of fixed assets
|
(27,312 | ) | (6,211 | ) | ||||
Acquisition
of domain name
|
(135,000 | ) | (25,000 | ) | ||||
Net
cash used by investing activities
|
(162,312 | ) | (31,211 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds
from convertible debenture
|
325,000 | - | ||||||
Net
proceeds from private placement
|
1,303,154 | 1,056,955 | ||||||
Proceeds
from related parties
|
156,696 | - | ||||||
Principal
payments on notes payable
|
(440,000 | ) | - | |||||
Net
cash provided by financing activities
|
1,344,850 | 1,056,955 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
638,973 | 200,434 | ||||||
Cash
and cash equivalents at beginning of year
|
366,655 | 166,221 | ||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 1,005,628 | $ | 366,655 | ||||
SUPPLEMENTAL
DISCLOSURES
|
||||||||
Cash
operating activities:
|
||||||||
Interest
paid
|
$ | 46,556 | $ | 64 | ||||
SUPPLEMENTAL
DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
Stock
issued for deferred compensation
|
$ | 909,625 | $ | - | ||||
Acquisition
of domain name
|
||||||||
Notes
payable assumed
|
$ | 840,000 | $ | - | ||||
Stock
issued
|
650,000 | - | ||||||
Total
non-cash consideration
|
1,490,000 | - | ||||||
Cash
consideration ($25,000 paid during the ended July 31,
2008)
|
160,000 | - | ||||||
$ | 1,650,000 | $ | - | |||||
Discounts
from warrants and beneficial conversion feature
|
$ | 325,000 | $ | - | ||||
Shares
issued for commonm stock payable
|
$ | - | $ | 111,479 | ||||
Shares
cancelled related to stock subscriptions
|
$ | 40,000 | $ | - | ||||
Shares
issued for conversion of debentures
|
$ | 325,000 | $ | - | ||||
Shares
issued for loan fees
|
$ | 86,500 | $ | - | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
F -
5
Solar
Energy Initiatives, Inc.
Notes to
Consolidated Financial Statements
Note
1 - Description of Business
Solar
Energy Initiatives, Inc. (“Company”, “our”, “us” or “we”) was
incorporated on June 20, 2006 under the laws of the State of Delaware and is a
renewable energy company focused on the development and commercialization of
solar energy products and technologies for a wide range of applications
including power production for solar parks, commercial buildings and residential
homes.
On August
19, 2008, the Company’s stockholders voted to amend the Company’s Articles of
Incorporation to change the Company’s name to Solar Energy Initiatives, Inc.
This amendment took effect on September 18, 2008. Solar Energy Initiatives, Inc.
is listed on the NASDAQ.OTC under the symbol: SNRY.OB.
On August
20, 2008 we formed a subsidiary company, Solar Energy, Inc., a Florida
corporation, to operate assets we acquired, which included the World Wide Web
domain name solarenergy.com. In
addition, we took over the relationship management of a rapidly growing
independent solar equipment dealer network.
We are
executing on a three pronged approach to achieve our plan. This
includes:
·
|
growing
our dealer network, increasing the selling potential for solar electric
(PV) and solar thermal (hot water) system solutions to homeowners and
commercial customers;
|
·
|
placing
solar systems on large commercial buildings and in some cases, owning the
system and selling the energy output to the owner/occupant(s);
and
|
·
|
becoming
a developer of solar parks bringing together landowners, utilities and our
corporate resources to build large photovoltaic
installations.
|
As an
integrator of solar energy systems we will enter into supply agreement(s) with
manufacturers of solar products and technologies which directly convert the
sun’s energy into electricity and heat, if this serves our needs. We
have identified and will continue to seek solar technologies that have industry
leading performance, are of high quality and offer competitive
pricing. We are selling solar power products including; solar panels
and inverters which convert sun energy into electricity compatible with the
utility network and solar thermal technologies that use the sun’s radiation for
hot water applications. Our initial solar sales efforts are primarily focused on
residential and commercial applications, primarily through our dealer network,
where our selected solar energy products and systems offer customers economic
benefits primarily compared with the relatively high cost of locally supplied
electricity with, and in some cases without, tax and other economic
incentives.
We intend
to focus our sales efforts in regions where electricity prices and government
incentives have accelerated solar power adoption. The business
segments we have identified to pursue can require a significant level of
expertise and capital, which we are working to address. We plan to
obtain the expertise, either internally, through acquisition or through
outsourcing, as well as obtain the necessary capital although there is no
guarantee that we will be able to acquire such expertise or
capital. If we are unable to acquire or develop such expertise or
capital, we may not be able to fully develop our planned business and ultimately
may be required to cease operations. We anticipate that the end
customers of our sales processes will be homeowners, owners of large commercial
and industrial buildings and facilities, and owners of large tracts of
undeveloped land.
In the
prior fiscal year ending 2008 we were a development stage company.
F -
6
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Note
2 - Summary of Significant Accounting Policies
Basis of Presentation and
principles of consolidation - The accompanying financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The consolidated financial statements
include the accounts of the Company and its wholly owned
subsdiary. All intercompany transactions are eliminated in final
consolidation.
Financial Instruments
- The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable, and notes receivable and payable. These financial
instruments are stated at their respective carrying values, which approximate
their fair values.
Use of Estimates -
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. The reported amounts of revenues and expenses during
the reporting period may be affected by the estimates and assumptions we are
required to make. Estimates that are critical to the accompanying financial
statements arise from our belief that we will secure an a d equate amount of
cash to continue as a going concern, that our allowance for doubtful accounts is
adequate to cover potential losses in our receivable portfolio, that all
long-lived assets are recoverable. The markets for our products are
characterized by intense competition, rapid technological development, evolving
standards, short product life cycles and price competition, all of which could
impact the future realization of our assets. Estimates and assumptions are
reviewed periodically and the effects of revisions are reflected in the period
that they are determined to be necessary. It is at least reasonably possible
that our estimates could change in the near term with respect to these
matters.
Revenue Recognition -
The Company recognizes revenue in accordance with the Securities and Exchange
Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue
Recognition”. The Company generates revenue from the sale of training,
photovoltaic panels, photovoltaic roofing systems, solar thermal products,
balance of system products, and management system products to our dealer network
or other parties. The Company anticipates it will not perform any
installations. SAB No. 104 requires that four basic criteria must be met before
revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services rendered; (3) the
seller's price to the buyer is fixed and determinable; and
(4) collectability is reasonably assured. Amounts billed or received from
customers in advance of performance are recorded as deferred
revenue.
Allowance for Doubtful
Accounts - The Company provides an allowance for doubtful accounts equal
to the estimated uncollectible amounts. Management believes
there were no uncollectible amounts as of July 31, 2009 and there were no
accounts receivable balances at July 31, 2008.
Warranty Reserves -
The Company purchases its products for sale from third parties. The
manufacturer warrants or guarantees the operating integrity, and performance
of photovoltaic solar products at certain levels of conversion efficiency
for extended periods, up to 25 years. The manufacturer also warrants or
guarantees the functionality of inverters and balance of systems up to 10
years. Therefore, the Company does not recognize warranty
expense.
Shipping and Handling Fees
and Costs -
Shipping and handling fees, if billed to customers, are included in net
sales. Shipping and handling costs associated with inbound freight are expensed
as incurred. Shipping and handling costs associated with outbound freight are
classified as cost of sales.
Cash and Cash
Equivalents - Cash and cash equivalents consist primarily of cash on
deposit, and money market accounts that are readily convertible into
cash.
Inventory - Inventories consist of
photovoltaic solar panels, solar thermal panels and components, other component
materials for specific customer orders and spare parts, and are valued at lower
of cost (first-in, first-out) or market. Management provides a reserve to reduce
inventory to its net realizable value. Certain factors could impact the
realizable value of inventory, so management continually evaluates the
recoverability based on assumptions about customer demand and market conditions.
The evaluation may take into consideration expected demand, new product
development; the effect new products might have on the sale of existing
products, product obsolescence, and other factors. The reserve or write - down
is equal to the difference between the cost of inventory and the estimated
market value based upon assumptions about future demand and market conditions.
If actual market conditions are less favorable than those projected by
management, additional inventory reserves or write-downs may be required. If
actual market conditions are more favorable, reserves or write-downs may be
reversed. As of July 31, 2009 inventory was
$226,412. Inventory was acquired during the four most recent
quarters, therefore there is no impairment. There were no inventories
as of July 31, 2008.
Fixed Assets - Fixed
assets are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization of equipment and improvements are provided over
the estimated useful lives of the assets, or the related lease terms if shorter,
by the straight-line method. Useful lives range as follows:
F -
7
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Category
|
Useful Lives
|
|
Computers
and networks
|
3
years
|
|
Machinery
and equipment
|
5-7
years
|
|
Furniture
and fixtures
|
5-7
years
|
|
Office
equipment
|
3-10
years
|
|
Leasehold
improvements
|
Lesser
of lease term or useful life of
asset
|
Maintenance
and repairs are expensed as incurred. Expenditures for significant renewals or
betterments are capitalized. Upon disposition, the cost and related accumulated
depreciation are removed from the accounts and the resulting gain or loss is
reflected in current operations.
Domain Name - The domain name is
determined to have an indefinite useful life, is not amortized, but is tested
for impairment annually or more frequently if events or changes in circumstances
indicate that the domain name might be impaired. The impairment test for
indefinite-lived domain name consists of a comparison of their fair value with
the carrying amount.
Long-Lived Assets and
Impairment - Statement of Financial Accounting Standards (SFAS) 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" requires that
long-lived assets, including certain identifiable intangibles, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of the assets in question may not be recoverable. We had Long
Lived Assets primarily consisting of the domain name acquired in our recent
transaction and we believe that this asset is fairly valued as of July 31,
2009. We had no Long-Lived Assets as of July 31, 2008.
Stock-Based
Compensation - We have adopted the fair value recognition provisions of
SFAS No. 123(R), “Share-Based Payment,” using the modified prospective
application transition method. Under the fair value recognition provisions
of SFAS No. 123(R), we recognize stock-based compensation net of an
estimated forfeiture rate and only recognize compensation cost for those shares
expected to vest over the requisite service period of the award. The
Company issues stock as compensation for services at the current market fair
value.
We
account for equity instruments issued for services based on the fair value of
the consideration received or the fair value of the equity instruments,
whichever is more reliably measurable. Stock based compensation was determined
using the fair value of the services performed due to the lack of historical
fair value of the equity instruments.
Determining
the appropriate fair value model and calculating the fair value of share-based
payment awards require the input of highly subjective assumptions, including the
expected life of the share-based payment awards and stock price volatility. The
assumptions used in calculating the fair value of share-based payment awards
represent management’s best estimates, but these estimates involve inherent
uncertainties and the application of management judgment. As a result, if
factors change and we use different assumptions, our stock-based compensation
expense could be materially different in the future. In addition, we are
required to estimate the expected forfeiture rate and only recognize expense for
those shares expected to vest. If our actual forfeiture rate is materially
different from our estimate, the stock-based compensation expense could be
significantly different from what we have recorded in the current
period.
Income Taxes - Income
taxes are computed using the asset and liability method. Under the asset and
liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using the currently enacted tax rates and laws.
A valuation allowance is provided for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized. Effective
January 1, 2007, we adopted the provisions of SFAS Interpretation
No. 48, Accounting of
Uncertainty in Income Taxes—An Interpretation of FASB Statement
No. 109 (“FIN 48”). Under FIN 48, we must recognize the tax benefit
from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on
the technical merits of the position. We measure the tax benefits recognized in
the consolidated financial statements from such a position based on the largest
benefit that has a greater than 50% likelihood of being realized upon ultimate
resolution. The application of income tax law is inherently complex. Laws and
regulations in this area are voluminous and are often ambiguous. As such, we are
required to make many subjective assumptions and judgments regarding our income
tax exposures. Interpretations of and guidance surrounding income tax law and
regulations change over time and may result in changes to our subjective
assumptions and judgments which can materially affect amounts recognized in our
consolidated financial statements.
Foreign Currency -
Gains and losses from foreign exchange transactions will be included in
the statements of operations. Currently there are none.
Basic and Diluted Net Loss
per Share - Basic net loss per share is computed by dividing the loss for
the period by the weighted average number of common shares outstanding for the
period. Fully diluted loss per share reflects the potential dilution of
securities by including other potential issuances of common stock, including
shares to be issued upon exercise of stock options and warrants, in the weighted
average number of shares of common stock outstanding for a period and is not
presented where the effect is anti-dilutive.
F -
8
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Concentrations of Credit
Risk
Cash and
cash equivalents - The Company maintains cash balances at a financial
institution in Ponte Vedra Beach, Florida. Accounts at these institutions are
secured by the Federal Deposit Insurance Corporation up to $100,000. At times,
balances may exceed federally insured limits. The Company has not experienced
any losses in such accounts. Management believes that the Company is not exposed
to any significant credit risk with respect to its cash and cash
equivalents.
Vendors - The following three
vendors make up the majority of our COS:
Suntech | 70% |
BP Solar | 9% |
GE Energy | 8% |
The
following vendors make up the majority of our Accounts Payable at July 31,
2009:
BP Solar | 16% |
GE Energy | 22% |
The
remaining vendors all account for less than 10% of total Accounts
Payable.
Customers - 55% of our revenues are
from one customer and the other 45% is evenly distributed amongst our
dealers.
F -
9
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Note
3 – Recent Accounting Pronouncements
In
September 2006, the FASB issued SFAS No.157, “Fair Value Measurements.” SFAS
No.157 provides guidance on the definition of fair value, methods to measure
fair value, and expanded disclosures of fair value. SFAS No.157 is effective an
s of the first interim or annual reporting period that begins after November 15,
2007. Accordingly, the Company adopted SFAS No.157 on August 1, 2008, which had
no significant impact on our financial statements.
In
February 2007, the FASB issued SFAS No.159, “The Fair Value Option for
Financial Assets and Financial Liabilities,” which allows companies the option
to measure certain financial instruments and other items at fair value. The
provisions of SFAS No.159 are effective as of the beginning of fiscal years
beginning after November 15, 2007. The adoption of SFAS No 159 did not have
a significant impact on our financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("SFAS No. 141R"). The objective of SFAS No. 141R is to improve
the relevance, representational faithfulness, and comparability of the
information that a company provides in its financial reports about a business
combination and its effects. Under SFAS No. 141R, a company is required to
recognize the assets acquired, liabilities assumed, contractual contingencies,
and contingent consideration measured at their fair value at the acquisition
date. It further requires that research and development assets acquired in a
business combination that have no alternative future use be measured at their
acquisition-date fair value and then immediately charged to expense, and that
acquisition-related costs are to be recognized separately from the acquisition
and expensed as incurred. Among other changes, this statement also requires that
"negative goodwill" be recognized in earnings as a gain attributable to the
acquisition, and any deferred tax benefits resulting from a business combination
are recognized in income from continuing operations in the period of the
combination. SFAS No. 141R is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. SFAS No. 141R could affect how
we account for business acquisitions occurring after its adoption
date.
In
December 2007, the FASB issued SFAS No. 160, "Non-Controlling Interests in
Consolidated Financial Statements-an amendment of ARB No. 51" ("SFAS No. 160").
The objective of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a company provides in its
consolidated financial statements. SFAS No. 160 requires a company to clearly
identify and present ownership interests in subsidiaries held by parties other
than the company in the consolidated financial statements within the equity
section but separate from the company's equity. It also requires the amount of
consolidated net income attributable to the parent and to the non-controlling
interest to be clearly identified and presented on the face of the consolidated
statement of operations; changes in ownership interest to be accounted for
similarly as equity transactions; and when a subsidiary is deconsolidated, any
retained non-controlling equity investment in the former subsidiary and the gain
or loss on the deconsolidation of the subsidiary to be measured at fair value.
SFAS No. 160 is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008. We do not believe
adoption of SFAS No. 160 will have any effect on our condensed consolidated
financial statements.
In May
2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 165,
“Subsequent Events.” SFAS No. 165 establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
the financial statements are issued or are available to be issued. Although the
standard is based on the same principles as those that currently exist in
accounting and auditing standards, it includes a new required disclosure of the
date through which an entity has evaluated subsequent events. The Company
adopted SFAS No. 165 during the quarter ended June 30, 2009, and its application
had no impact on the Company’s consolidated financial statements. The Company
evaluated subsequent events through the date the accompanying financial
statements were issued, which was October 23, 2009.
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles – A Replacement of
FASB Statement No. 162.” SFAS No. 168 establishes the FASB Accounting Standards
Codification as the single source of authoritative nongovernmental U.S.
generally accepted accounting principles. SFAS No. 168 is effective for interim
and annual periods ending after September 15, 2009. The adoption of this
standard will not have a material impact on our financial
statements.
F -
10
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Note
4 – Inventory
Inventories
consist of photovoltaic solar panels, solar thermal panels and components, other
component materials for specific customer orders and spare parts, and are valued
at lower of cost (first-in, first-out) or market. Management provides a reserve
to reduce inventory to its net realizable
value. Inventory consisted of the following as of July
31, 2009 and 2008.
2009 | 2008 | |||||||
Photovoltaic Solar panels and components | $ | 189,052 | - | |||||
Thermal Solar panels and components | 20,460 | - | ||||||
Other components and materials | 16,900 | - | ||||||
Total Inventory as of July 31, 2009 | $ | 226,412 | $ | - |
Note
5 – Fixed Assets
Fixed
assets consisted of the following as of July 31, 2009 and 2008:
Category
|
Useful
Lives
|
2009
|
2008
|
||||||
Furniture
fixtures and equipment
|
5-7
years
|
$ | 33,522 | $ | 6,211 | ||||
Less
accumulated depreciation
|
5,577 | 776 | |||||||
Net
fixed assets
|
$ | 27,945 | $ | 5,435 |
During
the years ended July 31, 2009, and July 31, 2008 depreciation, totalling $4,801
and $776, respectively, was charged to selling, general and administrative
expenses.
Note
6 –Acquisition of Domain Name
On July
8, 2008, the Company provided a non-refundable deposit of $25,000 to Solar
Energy, Inc. in anticipation of completing the acquisition of certain assets of
the company. On August 21, 2008, the Company entered into and
closed a Website Purchase Agreement (the “WPA”) with Solar Energy, Inc.
(“SEI”) and the shareholders of SEI pursuant to which the Company acquired the
Domain Name, www.solarenergy.com
, the web site that uses the domain name, the name Solar Energy, Inc. and
all trade rights associated with these assets (collectively, the “SEI
Assets”). In consideration for the purchase and sale of the SEI
Assets, the Company assumed various liabilities, made a cash payment of $160,000
at closing, issued the seller a secured note collateralized
by a lien on the assets referenced in the Website Purchase Agreement in
the principal amount of $840,000 with 7.5% interest that is payable over a
period of 21 months with payments of $40,000 per month and issued the seller
1,000,000 shares of common stock of the Company.
The
following is a schedule by years of future principle payments required under the
Note Payable issued at closing:
For
the period August 1, 2009 through May 1, 2010
|
$
|
400,000
|
F -
11
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Note
7 – Accrued Expenses
Accrued
expenses consist of the following as of July 31:2009 2008
Interest
for notes and convertible debentures
|
$ | 30,477 | $ | 56,376 | ||||
Salaries
and taxes payable
|
68,746 | 18,600 | ||||||
Legal
Expenses
|
32,798 | |||||||
$ | 132,021 | $ | 74,976 |
Note
8 – Convertible Debentures
In
November 2008, the Company entered into a convertible debenture agreement for
$325,000 with four private investors. The debenture is convertible
into 1,300,000 shares of common stock at $0.25 per share. In
addition, we issued 1,000,000 “A” Warrants and 1,000,000 “B” warrants
exercisable on a cash basis equal to $0.50 and $1.00
respectively. The A warrants can be exercised for cash and will
survive for two years from the closing date. The “B” warrants can be
exercised for cash and will survive three years from the Closing
Date. The Company shall have the right to call the “A” warrants if
its stock trades at or is otherwise valued at, or above $1.00 per share for 10
consecutive days. The Company shall have the right to call the
“B” warrants if its stock trades at, or is otherwise valued at, or above $1.50
per share for 10 consecutive days. The Company shall have the right,
upon written notice to the holder to reduce the exercise period of
the Warrants to a period of 15 days beginning on the date of the written
notice. Each of the four private investors were issued
convertible debentures with an interest rate of 12% per annum based on the
number of days the debt has been outstanding, from the date of the loan through
the date of repayment. The warrant component of the
promissory notes was valued at $144,493 using the Black- Sholes
Method. Additionally, the Company recorded a beneficial
conversion feature totaling $180,507. The value of the warrants and
the beneficial conversion feature was recorded as a discount to the convertible
debenture and $325,000 was expensed through July 31, 2009. The
debentures were converted to stock as of July 21, 2009
and 1,300,000 shares were issued, and accrued interest of
$28,093 was paid in August 2009
F -
12
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Note
9 – Stockholders’ Equity
Common Stock - On
July 30, 2008, the shareholders of the Company voted to increase its authorized
capital stock from 15,000,000 common shares to 100,000,000 common shares, $0.001
par value per share. There were 11,806,256 shares of common stock issued
and outstanding as of July 31, 2008.
During
the three months ended October 31, 2007, there was a private placement
outstanding valuing one unit at $0.35, made up of one share of common stock and
one common stock purchase warrant with an exercise price of $0.70 with a 2-year
term. In a series of cash transactions 329,728 shares of common stock
were sold for $ 115,405. Also during the period there were 7,314 shares of
common stock issued for services. The Company issued 3,050,000 shares of
common stock as compensation to employees at a value of $0.35 or $1,067,050 as
noted below:
Brad
Holt, CEO
|
1,800,000
|
|||
Isabella
Christensen
|
500,000
|
|||
Dell
Jones
|
500,000
|
|||
David
Surette
|
250,000
|
During
March 2008, shares totaling 1,000,000 and issued to Dell Jones and Isabella
Christensen have been cancelled and no compensation has been
recorded. Accordingly, the Company valued the remaining 2,050,000
shares at $717,500.
During
the three months ended January 31, 2008, the Company sold 1,000,000 units;
comprised of 1,000,000 shares of common stock, valued at $0.50 per share, along
with two common stock purchase warrants. One common stock purchase warrant
has an exercise price of $0.75 and the other common stock purchase warrant has
an exercise price of $1.50. These 1,000,000 units were sold in a private
placement for $500,000. The common stock was not issued as of April 30,
2008 and was payable subsequent to the period end. The shares were issued
during June 2008.
The
Company closed its private placement in March 2008 and sold 1,226,000 units;
comprised of 1,226,000 shares of common stock, valued at $0.50 per share, along
with two commons stock purchase warrants. One common stock purchase warrant
has an exercise price of $0.75 and the other common stock purchase warrant has
an exercise price of $1.50. These 1,226,000 units were sold in a private
placement for $613,000. Cash fees of $111,450, 90,000 shares and
1,000,000 warrants, issued for an exercise price of $0.50 with a term of
2-years, were paid as consideration for placement services provided by several
brokers. The shares were issued during June 2008. As of
July 31, 2008, 120,000 shares of this private placement had been issued but the
subscription value of $60,000 has not been paid, reflecting a Stock Subscription
Receivable in this amount.
During
March, 2008 the Company granted 1,000,000 shares of common stock as compensation
to David Surette. The grant was subsequently withdrawn with the
termination of Mr. Surette’s employment.
On August
8, 2008 Messrs. Fann and Dodak, and Holt were granted options to purchase
600,000 and 800,000 shares of common stock each,
respectively. Messrs. Fann and Dodak, each exercised 600,000 options,
in a cashless transaction, to common stock of the Company. Each
option had a conversion price of $0.50 per share. The resulting
difference between the trading and conversion price of the common stock was a
220,253 share issuance, each. The amount expensed approximately
$195,000 for Messrs. Fann and Dodak during the period ending October 31, 2009
was determined using the Black Sholes method. The amount expensed for
Mr. Holt during the period ending October 31, 2009 using the Black Sholes method
was $257,791.
F -
13
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
On August
26, 2008 the Company entered into a consulting arrangement with a company for
business consulting and other services for the term of six months, and issued
150,000 shares of common stock as consideration valued at $105,000. The Company
recorded the stock issuance as deferred compensation, of which the entire amount
has been amortized for the period July 31, 2009.
In
September 2008, Mr. Bakeman was granted 300,000 options with a value of $103,857
determined using the Black Sholes method and amortized over a period of three
years, and $11,539 was expensed during the period ending July 31,
2009. In February 2009 these options were
cancelled.
The
Company issued 350,000 shares of common stock to a group engaged to provide
business consulting and other services in September 2008 for the term of six
months, valued at $175,000. The Company recorded the stock issuance as deferred
compensation, of which the entire has been amortized for the period ended July
31, 2009.
The
Company issued 175,000 shares of common stock to a group engaged to provide
business consulting and other services in December 2008 for the term of four
months, valued at $50,750. The Company recorded the stock issuance as deferred
compensation, of which the entire amount has amortized for the period ended July
31, 2009.
In
December, 2008 Pierre Besuchet was issued 100,000 common stock shares valued at
$26,000 as consideration for being appointed to the Board of Director
position. The Company recorded the stock issuance as compensation
expense. He was also issued 100,000 Board Member Warrants which
are exercisable at $0.50 per share and have an 18 month term with a value of
$5,326 determined using the Black Sholes method and expensed during the period
ending January 31, 2009
F -
14
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
On
January 12, 2009 the Company entered into a consulting arrangement with a
company for business consulting and other services for the term of twelve
months. For the first six months the Company issued 100,000 shares of
common stock as consideration valued at $30,000, along with cash consideration
of $6,600 monthly. The Company recorded the stock issuance as deferred
compensation, of which the entire amount has been amortized for the
period ended July 31, 2009.
On
January 12, 2009 the Company issued 43,478 shares of Common Stock to Mr. Fann
and 86,957 shares of Common Stock to Mr. Dodak in lieu of cash for
compensation. The closing price of the stock on January 12,
2009 was $.23
On
February 2, 2009 the Company issued 87,500 shares of common stock to a group
engaged to provide business consulting and other services for the term of three
months, valued at $28,875. The Company recorded the stock issuance as deferred
compensation, of which the full $28,875 has been amortized for the period ended
April 30, 2009
In
February 2009 the Company issued 38,889 shares of common stock for business
consulting, valued at $14,778. The Company recorded the full value as
an expense for the period ending April 30, 2009.
In
February 2009 the Company issued 22,800 shares of common stock valued at $8,333
to Mr. Holt for consulting services.
In
February 2009 the Company cancelled 40,000 shares of stock which had been issued
to, but not paid for by an investor.
In
February 2009, the Company issued 20,000 shares of stock as commission for
securing debenture funds, valued at $9,600. The Company recorded the
full value as an expense for the period ending April 30, 2009
In March
2009 the Company issued 5,000 shares of stock to each of seven employees of the
subsidiary company Solar Energy, Inc valued at $12,250. The Company
recorded the full value as an expense for the period ending April 30,
2009.
In March
2009 the Company issued 1,000 shares of stock each to thirteen Dealers, valued
at $4,550 as part of a dealer incentive program. The Company
recorded the full value as an expense for the period ending April 30,
2009
In March
2009 Harold Gear and Everett Airington were each issued 100,000 common stock
shares, valued at $45,000, in consideration for their acceptance of Board of
Director positions. The Company recorded the stock issuance as
compensation expense.
In March
2009 MCD Trust was issued 60,000 shares of Common Stock in exchange for a loan
to the Company, valued at $27,000 of which the full value was recorded as an
interest expense for the period ending April 30, 2009.
In April
2009 the Company issued 1,000 shares of stock each to nine Dealers, valued at
$3,150 as part of a dealer incentive program. The Company
recorded the full value as an expense for the period ending April 30,
2009.
On April
2, 2009 the Company issued 200,000 shares of common stock to four groups engaged
to provide business consulting, and other services for the term of twelve
months, valued at $80,000. The Company recorded the stock issuance as deferred
compensation, of which $ 26,667 has been amortized for the period ended July 31,
2009.
F -
15
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
On April
30, 2009 the Company issued 60,000 shares of Common Stock to Mr. Dodak valued at
$20,000, and 101,824 shares of Common Stock to Mr. Holt valued at 40,000 in lieu
of cash for compensation. Mr. Holt was also issued 53,568
shares of Common Stock according to the terms of his consulting agreement valued
at $22,500. The Company recorded the full value as an expense
for the period ending April 30, 2009.
In April
2009 the Company cancelled 40,000 shares of stock which had been issued to, but
not paid for by, an investor.
In May
2009 the Company issued 1,000 shares of stock each to twelve Dealers, valued at
$4,200 as part of a dealer incentive program. The Company
recorded the full value as an expense for the period ending April 30,
2009.
In May
2009 MCD Trust was issued 150,000 shares of Common Stock in exchange for a loan
to the Company, valued at $55,500 of which the full value was recorded as an
interest expense for the period ending May 30, 2009.
In June
2009 73,333 shares valued at $22,000 were issued for consulting to Mike
Dodak
In June
2009 25,000 shares valued at 9,750 were issued as employee incentives, and the
full value expensed.
In June
2009 83,333 shares valued at $25,000 were issued in lieu of payroll, and the
full value recorded as salaries.
In June
2009 10,000 shares valued at $4,000 were issued for a loan to the
Company. The entire amount was expensed and recorded as interest
expense.
In June
2009 37,246 shares valued at $12,500 were issued for consulting fees to Brad
Holt. The entire amount was expensed
In June
2009 the Company issued 300,000 shares of common stock to a group engaged to
provide business consulting and other services for the term of eighteen months,
valued at $114,000. The Company recorded the stock issuance as deferred
compensation, of which $12,666 has been amortized for the period ended July 31,
2009
In June
2009 the Company issued 75,000 shares of common stock to a group engaged to
provide business consulting and other services for the term of three months,
valued at $30,000. The Company recorded the stock issuance as deferred
compensation, of which $20,000 has been amortized for the period ended July 31,
2009
In June
2009 the Company issued 300,000 shares of common stock to a group engaged to
provide business consulting and other services for the term of eighteen months,
valued at $156,000. The Company recorded the stock issuance as deferred
compensation, of which $8,666 has been amortized for the period ended July 31,
2009.
In July
2009 the Company issued 1,000 shares of stock each to four Dealers, valued at
$1,400 as part of a dealer incentive program. The Company
recorded the full value as an expense for the period ending July 31,
2009.
In July
2009 5,000 shares valued at $2,400 were issued as employee incentives, and the
full value expensed.
In July
2009 4,300 shares valued at $2,064 were issued for commission expense, and the
full amount recorded as commission expense.
In July
2009 the Company issued 350,000 shares of common stock to a group engaged to
provide business consulting and other services for the term of twelve months,
valued at $140,000. The Company recorded the stock issuance as deferred
compensation, of which $5,833 has been amortized for the period ended July 31,
2009
In July
2009 the company issued 32,000 shares valued at $12,792 as settlement for
outstanding accounts payable.
F -
16
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
In July
2009 the Company issued 1,000 shares of stock each to five Dealers, valued at
$1,750 as part of a dealer incentive program. The Company
recorded the full value as an expense for the period ending July 31,
2009.
In July
2009 the company issued 300,000 shares as compensation to Dean Leischow per the
terms of his agreement, for 90 days, valued at $120,000. The
value was expensed to salaries.
In July
2009, the Company sold 4,508,526 units at $0.30 per unit in a private placement
to accredited investors for $1,303,170, net of cash fees for
$48,860. Each Unit consists of one (1) share of common stock and one
(1) warrant to purchase one (1) share of common stock for $0.60 per
share.
Warrants - As of July
31, 2009, warrants to purchase; 981,715, 648,227, 2,226,000, 2,226,000,
1,100,000, 788,465, 701,056, 1,380,672, and 1,636,667 respectively, of our
common stock were granted in connection with the private placements as discussed
above and as follows:
Number
of Shares
|
Exercise
Price
|
Expiration
|
of
Common Stock
|
Date
|
|
981,715
|
$0.70
|
Oct-09
|
648,227
|
$0.70
|
Oct-09
|
2,226,000
|
$0.75
|
December-10
|
2,226,000
|
$1.50
|
June-11
|
1,000,000
|
$0.75
|
March-11
|
100,000
|
$0.50
|
June-11
|
1,000,000
|
$0.50
|
November-11
|
1,000,000
|
$1.00
|
November-12
|
788,465
|
$0.60
|
April-12
|
701,056
|
$0.60
|
May-12
|
1,380,672
|
$0.60
|
June-12
|
1,636,667
|
$0.60
|
July-12
|
F -
17
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Following
is a summary of the warrants outstanding as of July 31, 2009 and 2008 and
the related activity:
2008 |
2009
Weighted Average Exercise Price
|
2007 |
2008
Weighted Average Exercise Price
|
|||||||||||||
Outstanding
at beginning of year
|
7,081,942 | $ | 0.94 | 981,715 | $ | 0.70 | ||||||||||
Warrants
issued
|
6,606,860 | 0.64 | 6,100,227 | 0.98 | ||||||||||||
Warrants
exercised
|
- | - | - | - | ||||||||||||
Warrants
forfeited
|
- | - | - | - | ||||||||||||
Warrants
expired
|
- | - | - | - | ||||||||||||
Outstanding
at end of year
|
13,688,802 | $ | 1.01 | 7,081,942 | $ | 0.94 | ||||||||||
Exercisable
at end of year
|
13,688,802 | $ | 1.01 | 7,081,942 | $ | 0.94 |
Stock Options - The Company has estimated
the fair value of its option awards granted after January 1, 2008 using a
modified Black-Scholes option valuation model that uses the assumptions noted in
the following table. Expected volatilities are based on the historical
volatility of the Company’s stock. The Company uses historical data to estimate
option exercise and employee termination within the valuation model. The
expected term of options granted is derived from the output of the option
valuation model and represents the period of time that options granted are
expected to be outstanding. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant.
Modified
Black-Scholes-Based Option Valuation Assumptions
|
2009
|
2008
|
||||||
Fair
value of options granted during the period
|
$ | 2,277,135 | $ | - | ||||
Expected
term (in years)
|
3-5 | - | ||||||
Expected
volatility
|
84.6% - 99.9 | % | - | |||||
Weighted
average volatility
|
90.23 | - | ||||||
Expected
dividend yield
|
- | - | ||||||
Risk-free
rate
|
0.89% - 2.24 | % | - |
F -
18
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Stock
Option Plans - The Company adopted the following plans the fiscal year
ending July 31, 2009.
The
purpose of these plans is to encourage selected officers and key employees to
accept or continue employment with the Company, increase the interest of
selected officers, directors, key employees and consultants in the Company's
welfare through the participation in the growth in value of the common stock of
the Company. As of August 8, 2008, 3,500,000 shares have been authorized for
option grants During March 2009, the Company authorized an
additional 2,000,000. During 2009 and 2008, the Company granted
2,100,000 and 0 options, respectively. As of July 31, 2009,
outstanding options total 7,300,000. In September 2009, the Company authorized
an additional 5,000,000 options.
A summary
of the status of these plans as of July 31, 2009 and changes during the period
is presented in the following table:
Shares Available
for Grant
|
Options
Outstanding
|
Weighted
Average Exercise Price
|
||||||||||
Authorized,
August 8, 2008
|
3,500,000 | - | N/A | |||||||||
Authorized,
March 19, 2009
|
2,000,000 | |||||||||||
Granted
|
-8,800,000 | 8,800,000 | $ | 0.37 | ||||||||
Forfeited
|
||||||||||||
Cancelled
|
300,000 | (300,000 | ) | $ | 0.63 | |||||||
Exercised
|
(1,200,000 | ) | $ | 0.50 | ||||||||
Balance, July 31, 2009 | -3,000,000 | 7,300,000 | $ | 0.34 |
Weighted
|
|||||
Number
|
Average
|
Weighted
|
Number
|
Weighted
|
|
Outstanding
|
Remaining
|
Average
|
Exercisable
|
Average
|
|
as
of
|
Contractual
|
Exercise
|
as
of
|
Exercise
|
|
Range
of Exercise Prices
|
7/31/2009
|
Life
|
Price
|
7/31/2009
|
Price
|
.30-.50
|
7,300,000
|
2.45
|
0.34
|
1,685,000
|
0.4
|
Total
stock compensation expense recognized by the Company during the years ended July
31, 2009 under these plans was $782,519, and none in
2008.
F -
19
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Note
10 – Commitments and Contingencies
Operating Lease - On October 1, 2008 we
entered into two lease agreements for office and warehouse/assembly
space. Our corporate headquarters will be located at 818 A1A, Suite
202, Ponte Vedra Beach, FL 32082. The annual rent for
1,347 square feet of office space is $38,669 and we have entered into a 30 month
lease. In addition, we have leased 6,000 square feet of
warehouse/assembly and office space for Solar Energy, Inc.’s
operations. Located at 10330 Chedoak Ct., Suite 101, Jacksonville,
FL 32218, our annual lease cost will be $45,600 and we have entered
into a 36 month lease.
The
following is a schedule by years of future minimum rental payments required
under operating leases that have initial or remaining non-cancelable lease terms
in excess of one year.
Fiscal
year ending July 31, 2010
|
$
|
84,269
|
||
Fiscal
year ending July 31, 2011
|
74,602
|
|||
Thereafter
|
11,400
|
|||
Total
|
$
|
170,271
|
Rent
expense was $74,085, and $53,614 for the year ending July 31, 2008 and twelve
months ending July 31, 2009, respectively.
Agreements for investor
relations services -
On August 26, 2008 the Company entered into a consulting arrangement with
a company for business consulting and other services and issued 150,000 shares
of common stock as consideration.
The
Company issued 350,000 shares of common stock to a group engaged to provide
business consulting and other services in September 2008.
The
Company issued 175,000 shares of common stock to a group engaged to provide
business consulting and other services in December 2008.
In
January 2009 the Company entered into a consulting arrangement with a company
for business consulting and other services, and issued 100,000 shares of common
stock.
In
February 2009 the Company entered into a consulting arrangement with a company
for business consulting and other services, and issued 87,500 shares of common
stock
In April
2009 the Company entered into consulting arrangements with four companies for
business consulting and other services, and issued 200,000 shares of common
stock.
In June
2009 the Company entered into consulting arrangements with four companies for
business consulting and other services, and issued 300,000 shares of common
stock.
In June
2009 the Company entered into consulting arrangements with four companies for
business consulting and other services, and issued 75,000 shares of common
stock.
In June
2009 the Company entered into consulting arrangements with four companies for
business consulting and other services, and issued 300,000 shares of common
stock.
In July
2009 the Company entered into consulting arrangements with four companies for
business consulting and other services, and issued 350,000 shares of common
stock.
F -
20
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Management
services - The
Company has employment agreements with its CEO, President/CFO, and consulting
agreements with former Company officers.
The
Company entered into a five year employment agreement with Brad Holt as CEO. The
terms of the contract included an initial salary of $120,000 until specific
performance measures are met, at which time the salary is to be increased to
$220,000. On March 1, 2008 the salary was increased to the $220,000,
annually. Other performance bonuses are available at the discretion of the
board of directors. There is an 18 month severance if terminated
early.
In
December, 2008 Brad Holt resigned as CEO and assumed the Chairman of the Board
position. The Company entered into a consulting agreement with Mr.
Holt for a period of four years. The final terms are in
negotiation.
The
Company entered into a five year employment agreement with David Surette as
President, and CFO. The terms of the contract include an initial salary of
$160,000 effective January 15, 2008 until April 15, 2008, at which time the
salary is to be increased to $220,000. Other performance bonuses are
available at the discretion of the board of directors. There is an 18 month
severance if terminated early. On September 3, 2008, the Company
entered into a severance agreement with David Surette. Mr. Surette
will receive $36,000 in cash; $18,000 on September 20, 2008 and $3,000 per
month, for six (6) months, beginning October 1, 2008. In addition,
Mr. Surette returned 25,000 shares of common stock he was issued in the form of
consideration during his tenure as Chief Financial Officer.
The
Company has entered into a five year employment agreement with Michael Dodak as
VP of Corporate Development. The terms of the contract include an initial salary
of $120,000 until specific performance measures are met, at which time the
salary is to be increased to $150,000. Per the agreement, Mr. Dodak
elected to convert his contract to a consulting agreement whereby he will be
paid $10,000, monthly. The consulting agreement runs thru December,
2012. There is an 18 month severance if terminated early.
In
February 2009, The Board of Directors appointed Mr. David W. Fann as its new
Chief Executive Officer and promoted Mr. Gregory N. Bakeman to the position of
President. Mr. Bakeman will continue to serve as the Company’s Chief
Financial Officer. The new positions took affect immediately. In conjunction
with the management changes Mr. Michael J. Dodak resigned from the day-to-day
activities of the Company but will remain on the Board of Directors. Mr. Dodak
will now focus on securing large solar development projects via his proven
background within the renewable energy industry.
The
Company has entered into a four year employment agreement with David W. Fann as
CEO. The terms of the contract include an initial salary of $150,000.
The base salary will increase to $220,000 when the company receives a minimum of
$1,000,000. This increase took place in July 2009. There is an 18
month severance if terminated early.
The
Company has entered into a four year employment agreement with Gregory N Bakeman
as President and CFO. The terms of the contract include an initial salary
$160,000. The base salary will increase to $220,000 when the company receives a
minimum of $1,000,000. This increase took place in July 2009. There
is an 18 month severance if terminated early
In April 2009 The Company hired Dean
Leischow as Executive Vice President of Sales and Marketing. Mr
Leischow will be paid a salary of $120,000 per year, and will receive 100,000
shares of S-8 stock in lieu of cash for the first 90 days. The
stock was issued in July 2009 with a value of $120,000. The entire
amount was expensed as salaries for the period ending July 31,
2009.
F -
21
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Supply of Materials -
There is currently an abundant supply of solar panels and adequate supply of
other components.. Reduced cost of materials may affect planned
revenues and could adversely affect gross margins, based on the potential of
increased competition and pricing pressures, and results of
operations.
Dependence on Limited Number
of Suppliers - The Company intends to buy the majority of certain
components or systems used to install its products from a limited number of
suppliers. The loss of one of these suppliers or a significant reduction in
product availability from a principal supplier could have a material adverse
effect on the Company's results of operations.
Solar Project Lease –
In late July 2009 the Company signed a Solar Project Lease and Agreement
(“Project Lease”) to lease approximately 3,300 acres of land, including all air
space thereof and all areas necessary or appropriate for the construction of
underground Solar Power Facilities (“the Premises”), located in the state of
Texas for the development of a 300 megawatt solar park.
The
Company shall have a period not to exceed 90 days following the effective date
of the agreement whereby either the Company or the lessor may elect, by written
notice to terminate the Project Lease. As consideration for the lessor’s
agreement to enter into the Project Lease subject to the Title Evaluation
Period, the Company paid a nonrefundable $10,000 fee. However, the Company shall
be entitled to a full credit equivalent to the Evaluation Fee against the rent
amount payable by the Company on the rent commencement date.
The
Project Lease shall initially be for the term commencing in July 2009 and ending
on the sooner to occur of 5 years or the date on which the first extended term
commences (the “Development Term”). The Company shall have the right and option
to extend the term of the Project Lease for two successive 25 year periods
(“Extended Terms”).
Rent
during the Development Term shall be equal to the product of (a) $7.00 and (b)
the number of acres of the Premises commencing on the rent commencement date and
each successive twelve month period.
During
the Extended Terms, the Company shall pay to the lessor as a minimum rent
(“Minimum Rent”) the greater of (i) a per acre amount multiplied by the number
of acres of the Premises or (ii) a per megawatt amount multiplied by the
Megawatts of generating units on the premises as below:
Extended
Term Year
|
Per
Acre
|
Per
Megawatt
|
1-20
|
$17.50
|
$3,000
|
21-30
|
$27.50
|
$4,500
|
31-40
|
$30.00
|
$5,000
|
41-50
|
$35.00
|
$6,000
|
For each
Extended Term year, the Company shall also pay to the lessor, as addition rent
(“Additional Rent”), the amount, if any, by which gross revenues, multiplied by
a percentage commencing at 4.0% for extended term years 1-10 and increasing 0.5%
in year 11 and every 5 years through the end of the lease, exceeds the Minimum
Rent.
This lease would be transferred into Solar Park Initiatives” a
separate Co announced in October, and is projecting this will occur
in early November.
F -
22
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Note
11 – Related Party Transactions
In March
2007, NP Capital entered into an agreement to sell the convertible debenture for
$152,500, with discounts if paid early, to 0784655 B.C. LTD (“B.C.”), a
company controlled by Paul Cox, a shareholder and a former officer and board
member of NP Capital. Mr. Cox remains a shareholder, officer and board member of
Envortus Inc. In July 2007, the sale of the convertible debenture was completed
with a payment of $55,000 to NP Capital and the receipt of a
promissory note in the amount of $97,500 (the “Note”), from B.C. for the
balance. The principal amount of the Note was immediately discounted
to $90,800. In addition, if the Note was paid within the first 270
days of issuance, additional discounts could be available. Further,
in the event that we do not commence trading on the OTC BB by January 2009, Paul
Cox. may return shares of common stock of our Company for cancellation in lieu
of payment of the Note. The price per share shall be the greater of
$0.35 or the last price to raise funds from third parties.
To
account for the Note the Company determined the fair value of the Note on a
discounted basis to be equal to $68,100, which represented the discounted
balance to be paid by B.C. assuming early payments made within 90 days from
closing as provided in the Note. Based on the fair value of the note
of $68,100, a loss totaling $11,405 was recorded for the year ended July 31,
2007 as reflected in the table below:
Consideration
for sale of debenture:
|
||||
$ | 55,000 | |||
Note
receivable
|
97,500 | |||
Total
consideration
|
152,500 | |||
Immediate
discount
|
(6,700 | ) | ||
Bank
fee
|
(5 | ) | ||
Expected
early payment discount
|
(22,700 | ) | ||
Total
net consideration
|
123,095 | |||
Investment
in convertible debenture
|
134,500 | |||
Loss
on sale of investment
|
$ | (11,405 | ) | |
F -
23
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
The
Company had originally invested $134,500 in a convertible debenture with
Envortus. The Company then took back a Note for $97,500 and cash paid
back of $55,000. The Company reviewed the fair value of the $97,500
Note, which had an immediate discount of $6,700 and an early expected payment
discount of $22,700. The Company decided to take a valuation
allowance on the $22,700 and the $6,700 during July 2007, leaving a balance on
the Note of $68,100. Comparing the consideration received of $55,000
and the remaining value of the Note at $68,100 or $123,095, net of a $5 fee,
this resulted in a loss on sale of the original investment in convertible
debenture of $11,405. The Company has allowed for the remaining
balance of the Note and recorded bad debt related to note receivable, related
party, in the amount of $68,100, due to concerns of collectibility and
non-payment of the scheduled payments. Per the terms of the Note,
B.C. was required to pay principal in the amount of $10,000 in January 2008 and
additional payments of $17,240 in July 2008, $31,780 in January 2009 and $31,780
in July 2009, together with interest, according to the payment schedule as
defined by the Note when the early payments are not received. As of
the date hereof, B.C. has not made the required principal and interest
payment.
The
Company is pursuing legal action against the Note’s obligor for
non-payment.
There is
no continuing obligation on the Company under the terms of the Convertible
Note.
During
March 2008 the Company granted an additional 1,000,000 shares of common stock as
compensation to David Surette at a value of $0.50 or $500,000. The shares
were to be issued in June, 2008, but as discussed in Note 10, the shares were
canceled upon Mr. Surette’s termination.
As of
July 31, 2009 the Company has obligations to related parties for loans and
related services totaling $188,391 of which 100% was paid in August with accrued
interest at 12% per annum, and $31,735 as of July 31, 2008.
F -
24
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Note
12 – Termination Settlement
The
Company entered into a five-year employment agreement with Mr. Surette on March
6, 2008, as President, and CFO. The terms of the contract include an initial
salary of $160,000 effective January 15, 2008 until April 15, 2008, at which
time the salary is to be increased to $220,000. Other performance bonuses
are available at the discretion of the board of directors. There is an 18 month
severance if terminated early.
Mr.
Surette’s employment with the Company was severed in July 2008. A
1,000,000 share issuance announced in March 2008 was
canceled. A settlement agreement was reached in September,
calling for a $36,000 cash payment, $18,000 at the time the agreement was
signed, September 20, 2008, and $3,000 per month for six months beginning
October 1, 2008. Additionally, Mr. Surette was to return 25,000 share
of common stock he received as partial consideration for him employment
services.
This
agreement has been recorded as an accrued liability for the payment of the cash
settlement amount of $36,000. The payment was made in full as of July 31,
2009.
Note
13 – Income Taxes
Income
taxes are computed using the asset and liability method. Under the asset and
liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using the currently enacted tax rates and laws.
A valuation allowance is provided for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized. The
Company has provided a full valuation of deferred taxes as of July 31,
2009.
F -
25
Note
14 – Going Concern
Our
financial statements are prepared using accounting principles generally accepted
in the United States of America applicable to a going concern, which contemplate
the realization of assets and liquidation of liabilities in the normal course of
business. We have incurred losses from operations since our inception, and at
the present time will need additional capital to maintain operations and execute
our business plan. As such, our ability to continue as a going
concern is contingent upon us being able to secure an adequate amount of debt or
equity capital to enable us to meet our cash requirements. In
addition, our ability to continue as a going concern must be considered in light
of the problems, expenses and complications frequently encountered by entrance
into established markets, the competitive environment in which we operate and
the current credit shortage facing world wide markets.
Since
inception, our operations have primarily been funded through private equity
financing, and we expect to continue to seek additional funding through private
or public equity and debt financing.
However,
there can be no assurance that our plans discussed above will materialize and/or
that we will be successful in funding our estimated cash shortfalls through
additional debt or equity capital and/or any cash generated by our operations.
These factors, among others, indicate that we may be unable to continue as a
going concern for a reasonable period of time.
We
anticipate our operations will be sufficient to provide adequate operating
revenue to maintain the business. Adding at least $1,000,000 in funds
will allow us to quickly move forward with projects in hand which, if
successful, should provide cash flow allowing for advantageous inventory
purchases and the securing of additional projects, potentially increasing our
growth and profitability. With more capital, we would also add
additional staff and start development of other projects. Currently we have
approximately $1,005,628 in cash on hand. The current
level of cash is not enough to cover the fixed and variable obligations of the
Company, so increased sales performance and the addition of more capital are
critical to our success.
Assuming
we are successful in our sales/development effort, we believe that we will be
able to raise additional funds through the sale of our stock to either
current or new shareholders. There is no guarantee that we will be able to raise
additional funds or to do so at an advantageous price.
Our
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should we be unable to
continue as a going concern
F -
26
Solar
Energy Initiatives, Inc.
Notes
to Consolidated Financial Statements
Note
15 – Subsequent Events
In August
2009, the Company settled a dispute with Bradley C. Holt at which time Mr. Holt
resigned as a Consultant to and Director of the
Company. He was paid $20,000 which was reflected in our
Accounts Payable as of July 31, 2009.
In
September 2009, the Company announced an offer to all holders of its Warrants
that it would reduce the exercise price on the Warrants to $0.30 per share for a
temporary period. During the temporary Warrant exercise price
reduction period, which ended October 15, 2009, 2,038,500 Warrants were
exercised at $0.30 into a corresponding number of shares of common stock for a
total of $611,549.The shares were issued on October 15, 2009.
In
September 2009 Solar Energy Initiatives, Inc. [OTCBB: SNRY] announced a
partnership with three Jacksonville job training and placement agencies to train
displaced workers as solar energy installation and maintenance technicians. This
new partnership is a first step in Solar Energy’s Renew the Nation campaign
intended to promote job growth and economic development nationwide by providing
a trained workforce to enter the fast growing renewable energy industry. The
program, pending final approval by the Jacksonville City Council, is being
funded in part by $396,000 in federal stimulus dollars provided by the American
Recovery and Reinvestment Act of 2009.
Joining
Solar Energy in this job training collaborative is Community Rehabilitation
Center (CRC), Northeast Community Action Agency (NFCAA) and WorkSource. Solar
Energy is providing the training curriculum and materials, while CRC will manage
the program and NFCAA and WorkSource will supply the trainees.
The
training facility, to be called CRC Institute, will be located at Pearl Plaza at
the corner of North Pearl and 44th
streets. The funding for the program development is expected in late October and
the first class is anticipated to begin in December 2009.
In
September 2009 the Company announced letters of intent for $17 million in
commercial projects that will utilize approximately 20,000 solar panels with a
rated maximum capacity of 4 megawatts of solar electricity.
In
September 2009 the Company authorized an additional 5,000,000 options
for the 2009 Incentive Stock Plan.
On
September 25, 2009 the Company formed Solar Park Initiatives, Inc. (“Solar
Park”), as a wholly owned subsidiary. Solar Park will focus on developing large
utility-scale solar parks, with a target for projects ranging from 10 to 500
megawatts in geographies favorable for development. The Company will procure the
solar power system technologies for Solar Park’s projects.
In
September 2009, two related parties loaned the Company a total of $100,000 with
an interest rate of 12%, per annum on the unpaid balance and 1 share of common
stock per $1.00 loaned. The shares were issued in
October.
In
October 2009, the Company announced that it will be spinning-off Solar Park and
that it hired Mr. Michael Gorton as the CEO of Solar Park. The Company’s
shareholders of record, as of October 15, 2009, will receive one common share of
Solar Park for every two common shares of the Company owned
stock. Shareholders as of the record date will not be
required to pay for any shares distributed to them or take any action to receive
the stock dividend.
In
October 2009, the Company it hired Messrs. John Willis and Mr. James Roberson,
PMP (Project Management Professional), as the Director of Dealer Sales and
Director of Project Management, respectively.
F -
27